While it is true that home insurance and a home warranty both protect the homeowner from costly repairs, there is a vast difference between the two. The main difference is in the kinds of things that they cover. It is therefore very understandable that new homeowners might not have a clear definition of the two. That being said, here are some clarifications that should help clear the air.
What is a Home Warranty?
A home warranty is a form of insurance cover that protects a home’s internal appliances and systems. A typical home warranty is very similar to a home insurance cover, but they are not the same thing.
Generally, a homeowner pays a yearly premium for a home warranty to the tune of $300 – $600. This money is to cover any potential issues with their home’s internal appliances or systems. Should any of these things break down during that year, the homeowner will call the home warranty company, and they will take of it. The company will contact one of the many partnered contractors who will then either repair or replace whatever systems or appliance has broken down.
Depending on the home warranty company, the homeowner will only be required to pay a service call fee of about $60 – $100 for the appointed contractor to come out to their home. The contractor will then run a quick diagnostic check, and if the home warranty covers the problem, then the contractor will sort it out at no further expense to the homeowner. With a home warranty, all the homeowner has to worry about is the service call fee and the annual premiums. They don’t have to worry about the possibly thousands of dollars that they might have had to shell out to either repair or replace the system or appliance by themselves.
What Does a Typical Home Warranty Cover?
A typical home warranty covers two main aspects of the home: the internal systems and the appliances. These often include things such as:
- The heating and cooling systems
- The plumbing
- The electrical systems
Some covers will also include significant home appliances such as:
It all depends on the home warranty company’s plan since every company has it’s on offer on the market. What is important to note is that home warranties don’t generally cover any damage caused by malfunctioning appliances or systems. For example, if there were an issue with your electric oven, the home warranty company would pay to fix it. However, if that issue caused a short circuit that affected other parts of the home or ruined your TV, the home warranty will not cover that damage. Luckily, that’s precisely what home insurances do.
What is Home Insurance?
Most homeowners have home insurance. This is mostly because mortgage companies stipulate it as a requirement. Only about 40% of the homes in America are free of mortgage obligations, so it’s safe to say that a vast majority of the U.S home market has home insurance. So, what is home insurance?
Home insurances cover the home’s structure, as well as the homeowner’s personal property, should either one gets damaged in emergencies such as floods, fires, or stolen during a burglary.
Like is the case with a home warranty, a homeowner would pay an annual premium to the home insurance company. This figure usually falls anywhere between $300 or more depending on the kind of home insurance cover the homeowner wants. Whenever something happens, say a disaster such as a fire that causes damage or loss of property, the homeowner files a claim with the insurance company. If the damage is part of the cover, then the insurance company foots the bill for replacement or repair.
For the most part, the homeowner has to pay some deductible before the insurance company can cut them a check for their losses. The higher that deductible is, the lower the annual premium for the home insurance.
What Does a Home Insurance Cover?
A home insurance policy covers damage to the actual home and any property therein. If, for example, an HVAC system malfunctions and needs repair or replacement, a home insurance cover will not pay that repair or replacement. That kind of thing is covered under a home warranty. However, if the malfunctioning HVAC starts a fire that burns down the house, then the home insurance cover will pay for that damage.
The truth is that a typical home needs both types of covers. For the most part, a home warranty is a cover that is often used more frequently than a home insurance cover. However, the damage covered by a home warranty doesn’t come anywhere close to the kind of damage that a home insurance coverage protects. That is why a typical home warranty premium is much cheaper than home insurance premiums. That, however, does not mean that one can replace the other. Both covers are essential for providing the homeowner with much-needed peace of mind. Getting the right cover is one of the most important things a homeowner can do as soon as they buy their home.