What’s the Difference Between a Home Warranty and Home Insurance?

Home warranty and home insurance — i.e., homeowners insurance — may seem like interchangeable terms. In reality, they’re two separate policies, each providing critical benefits to homeowners. Let’s examine the differences between these two coverages and how they can protect you as a homeowner.

Home Warranty Vs. Home Insurance

Here’s what you need to know about a home warranty and homeowners insurance.

Home Warranty

What Is a Home Warranty?

A home warranty is a service contract that helps cover the costs of repairing or replacing the appliances and systems in your home. Unlike homeowners insurance, which helps protect your home from covered losses, a home warranty covers general wear and tear. Additionally, it can protect your appliances and systems after the manufacturer’s warranty expires.

When purchasing a home, a home warranty can be a part of the escrow process. Quite often, sellers will have a home warranty policy included in the closing costs to further incentivize the buyer.

What Does a Home Warranty Cover?

A home warranty typically covers repairing or replacing essential home appliances and systems that aren’t directly related to your home’s structure. These appliances and systems may include:

• Dishwashers

• Ovens

• Refrigerators

• Stoves

• Washing Machines

• Dryers

• Boilers

• HVAC systems

• Electrical systems

• Plumbing systems

How Much Does a Home Warranty Cost?

According to Forbes, the average cost of a home warranty is $600 per year or $50 per month. Yet, your actual cost may vary depending on your provider, coverage level, and location. While a home warranty is another monthly or annual expense to add to your budget, it can save you money in the long run. For example, according to Forbes, if your plumbing system needs service, most plumbers charge $45 to $200 for their hourly labor rates. And that’s not including the cost of materials and additional expenses, such as permits or disposal of old equipment. Without a home warranty, your repair or replacement bill could be hundreds or thousands of dollars.

Homeowners Insurance

What Is Homeowners Insurance?

Homeowners insurance is a policy that helps financially protect you following a covered loss involving your home. When you purchase homeowners insurance, your policy may include these coverage options:

• Dwelling protection — May help cover the cost of repairing or rebuilding your home’s physical structure or anything permanently attached to it.

• Other structures — Helps cover structures that aren’t attached to your home, such as swimming pools, gazebos, fences, and sheds.

• Personal property — May provide reimbursement for damaged or lost belongings due to a covered peril. These items often include furniture, electronics, and clothing. You may need additional property coverage for valuables like fine art, jewelry, and antiques.

• Extended replacement cost — Provides additional coverage for your dwelling’s policy limits to rebuild your home following a covered loss.

• Additional living expenses — If your home becomes uninhabitable due to a covered loss, this coverage can help pay for living expenses, such as hotel accommodations and meals.

• Personal liability protection — If you’re held liable for bodily injury or property damage caused to others, this coverage can help pay for expenses such as medical bills or repairs.

• Guest medical protection — Helps pay medical expenses for guests who accidentally injure themselves on your property.

What Does Homeowners Insurance Cover?

A typical homeowners insurance policy covers a wide range of covered losses, including:

• Fire and smoke damage

• Weather-related damage, such as lightning, wind, or hail damage

• Theft of personal property

• Vandalism

• Water damage, such as leaks or burst pipes

• Weight of ice, snow, or sleet

• Falling objects

• Explosion

• Damage from an aircraft or vehicle

What Does Homeowners Insurance Not Cover?

Understanding what your homeowners insurance doesn’t cover is as important as knowing what it does. Typically, homeowners insurance doesn’t cover damage from floods or earthquakes. You must purchase separate policies to help protect your home from these disasters. Additionally, homeowners insurance usually doesn’t cover damage caused by negligence. For example, if your roof becomes damaged due to a lack of maintenance, you may not receive coverage.

How Much Does Home Insurance Cost?

According to Bankrate, the average cost of homeowners insurance in the United States is $1,428 per year or $119 per month. However, your actual rate depends on various factors, including your location, claims history, credit history, and the cost to rebuild your home, among other variables. Luckily, there are ways to help lower your homeowners insurance rate, such as selecting a higher deductible, bundling home and auto insurance policies, renovating your home, and installing protective devices.

Do I Need Both a Home Warranty and Home Insurance?

If you have a mortgage or plan to apply for one, most lenders require homeowners insurance as a condition for receiving a loan. Lenders typically require a homeowners policy to ensure the property they invest in is fully protected against covered losses.

On the other hand, home warranties are optional. The choice is up to you whether or not a home warranty suits your needs and budget as a homeowner.

Conclusion

The differences between a home warranty and homeowners insurance are important since each provides benefits. A home warranty helps cover the costs of repairing or replacing your home’s appliances and systems due to normal wear and tear, while homeowners insurance protects your home from covered perils.

Dan Zeiler

dan@zeiler.com

877-597-5900 x134