Home Warranty vs Homeowners Insurance: What Do You Need?

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Key Highlights:

  • A homeowners insurance policy is required if you carry a mortgage on your home.
  • Even without a requirement, home insurance is important to protect your home against potentially catastrophic disasters such as fires, storms, or thefts.
  • Home insurance does not cover mechanical breakdown or wear and tear of major home appliances or systems.
  • A home warranty plan is a service contract to cover for wear and tear of appliances and systems.
  • A home warranty is a great supplement to a homeowners insurance policy to prevent gaps in coverages.
  • While not required by lenders, a home warranty plan can save you money in the long run.

If you are a homeowner, there is a good chance you are familiar with home insurance, especially if you took out a loan since the mortgage lender often requires insurance.

Your home is one of the biggest purchases you will make in your lifetime, so it is a good idea to protect yourself against any unexpected events. This is where a home insurance policy can come in handy. But a home warranty plan can also help protect your investment.

What Does a Home Warranty Cover?

A home warranty covers your appliances and other home systems from the normal wear and tear that can happen over time. With most service contracts, you are covered for repairing the system or appliance that has broken down due to age or wear.

In some cases, if the item cannot be repaired, the home warranty plan will allow for replacing the appliance or system, subject to a small fee, similar to an insurance deductible.

Some of the appliances covered under this service contract can include your refrigerator, dishwasher, washer, dryer, or ovens. Examples of home systems that are typically covered with a home warranty are HVAC systems, plumbing, or electrical. A home warranty can be beneficial if you live in an older home where you do not always know the age of appliances and systems.

If you are purchasing a newly built home, sometimes a builder warranty is included. A builder warranty is like a home warranty plan in that it will cover major home systems like plumbing, but it does not always cost extra.

How Much Does a Home Warranty Cost?

The cost of a home warranty varies depending on the home warranty company and coverages. But a homeowner can typically purchase a home warranty for a few hundred dollars per year. Remember that a service fee is also involved for any service calls made, which needs to be factored in. 

Typical service fees can run anywhere between $60 to $120 per visit.

Despite the monthly cost or fees associated with service calls, a home warranty plan has the potential to save a homeowner significant amounts of money, especially if multiple appliances or systems need replacement at the same time.

For example, if your HVAC system and refrigerator break down within weeks of each other, you can have peace of mind knowing that you do not necessarily have to come with the money to repair or replace both.

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What Does Homeowners Insurance Cover?

A homeowners insurance policy will protect the structure of your home, anything unattached to it, and personal property from a specific event or weather disaster. While you are covered for appliances on a home insurance policy, you will not be covered for these items’ general use or wear.

Instead, a homeowners insurance policy is intended to provide coverages like fire, wind, lightning, hail, or theft to your home and personal property. Homeowner’s insurance also covers a homeowner for any personal liability.

Almost as important as what you are covered for with a home insurance policy is what you are not covered for – especially since these exclusions can create significant gaps in coverage. As mentioned previously, wear and tear are almost always excluded from a homeowners policy, which is why a home warranty is an excellent asset to a homeowner.

Floods are another peril that is excluded from a homeowners policy. Depending on where you live, a flood insurance policy might be a good idea as well.

How Much Does Homeowners Insurance Cost?

The amount of money you spend on a homeowners insurance policy will depend on your home itself. Specifically, where the house is located and how much it would cost to rebuild in a disaster.

The replacement cost of your home does not include land, so it is best to discuss with a professional what your home should be insured for. Home insurance can cost anywhere from hundreds of dollars a year to thousands, depending on these factors.

Very much like a service fee with a home warranty, a home insurance policy includes a deductible. A deductible is the amount of money a homeowner pays upfront in the event of a loss. You can choose a deductible as low as $500 or sometimes as high as $5,000, and the higher the deductible, the lower you will pay for your policy.

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Main Differences Between Homeowners Insurance & a Home Warranty

While some similarities exist, the main difference between a homeowners insurance policy and a home warranty plan is what a homeowner is being protected against. With a home insurance policy, a homeowner is protected from an unexpected event. Its intended purpose is to provide homeowners with peace of mind that financial resources are available if they are affected by a catastrophic event.

A home warranty plan provides a homeowner with peace of mind that their significant appliances or home systems will be repaired or replaced with the inevitable wear and tear of everyday use.

Do I Need To Get Homeowners Insurance & a Home Warranty?

If you took out a loan to purchase your home, most mortgage lenders would require you to purchase a homeowners insurance policy. However, even if you did not go through a mortgage lender, carrying a home insurance policy is essential for a homeowner. Your homeowner’s insurance covers you for any necessary replacement or repairs in a weather disaster or any other peril listed within your policy.

While a home warranty is also an excellent idea for homeowners, most lenders do not require it. However, carrying a home warranty plan is the only way to ensure the repair or replacement of your appliances and home systems from mechanical breakdown or wear and tear. As such, the best way to protect yourself as a homeowner is to purchase both a homeowners insurance policy and a home warranty plan.

Make Sure Your Coverage Needs Are Met

If you are a homeowner, the best way to protect your most significant financial investment is to purchase both a home insurance policy and a home warranty plan. A homeowners insurance policy covers your dwelling itself and any unattached structures from specific causes of loss.

On the other hand, a home warranty is a service contract meant to protect your major home appliances or systems from normal wear and tear. A warranty is a great tool to supplement your home insurance since gradual breakdown is not something homeowners insurance would typically cover. Purchasing a home warranty and a homeowners insurance policy is the best way to give yourself the peace of mind to know your home is fully protected.

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