A Home Warranty And Home Insurance: What's The Difference?
Have you ever wondered what the difference was between a home warranty and home insurance? Both protect a home and a homeowner's pocketbook from costly repairs, but what exactly do they cover? Do you need both a home warranty and home insurance, or can you get just one? All of these are excellent questions that many homeowners ask. Let’s take a look at what a home warranty is, what home insurance is, and what the differences are between the two.
What is a home warranty?
A home warranty protects a home’s internal systems and appliances. While a home warranty contract is similar to home insurance, especially in how a homeowner uses it, they are not the same thing.
A homeowner will pay a yearly premium to their home warranty company, generally between $300-$600. Then, if a system or appliance in their home breaks down, instead of calling a repair company they call their home warranty company. If the system or appliance is covered under the homeowner’s home warranty plan, the home warranty company will send out a contractor who specializes in the repair of that particular system or appliance. The homeowner pays a flat rate service call fee (usually between $60-$100, depending on the home warranty company) to have the contractor come to their home and diagnose the problem. If the issue has been caused by something covered under the home warranty contract, then the home warranty company will pay for the repair or replacement and all the homeowner has had to pay is for the service call fee and yearly premium.
What does a home warranty cover?
A home warranty covers the main systems in a house, such as a home’s heating, cooling, plumbing, and electrical systems. A home warranty may also cover the larger appliances in a home like the dishwasher, oven, refrigerator, clothes washer, and dryer. Home warranty companies generally have different plans available that provide coverage on all or a select few of these items.
Home warranties do not cover damage caused by malfunctioning systems or appliances. For example, if a toilet was leaking, the home warranty company would pay to fix the toilet, but would not pay to repair any water damage that was caused to the structure of the home because of the leaking toilet. Luckily, it would be covered by insurance.
What is home insurance?
If a homeowner has a mortgage on their home (which most homeowners do) they will be required by their mortgage lender to purchase home insurance. Home insurance covers a home’s structure and a homeowner’s personal property if it is damaged or stolen in an emergency like a fire or burglary. Home insurance may also cover medical expenses for injuries that individuals sustained by being on your property.
A homeowner pays a yearly premium to their homeowner’s insurance company. On average, this is somewhere between $300-$1,000 a year, depending on the policy. When something is damaged by a disaster that is covered under the home insurance policy, a homeowner will call their home insurance company to file a claim. Then, as long as the damage is covered under the home insurance policy, the home insurance company will send the homeowners a check. Homeowners will generally have to pay a deductible, a fixed amount of money that comes out of the homeowner’s wallet before the home insurance company pays any money towards the claim. A home insurance deductible can be anywhere between $100 to $2,000. Generally, the higher the deductible, the lower the yearly premium cost.
What does home insurance cover?
Home insurance covers damage to a house's structure and a homeowner’s personal property from fires, theft, rain, hail, wind, trees, explosions, overflow of water, and other disasters. A homeowner’s insurance policy will generally call these “perils” in their contract. Some contracts have “named-peril” policies that will only cover home or personal property damage if the peril is specifically listed in the policy. Other home insurance policies cover a larger number of tragedies than the ones they list and will cover damages from everything except for the “perils” they specifically exclude. These types of policies are called “open-peril” policies.
Home insurance policies do not cover the actual systems and appliances in a home if they break down, so if your HVAC system needed to be replaced because it had gotten old and worn out, your home insurance policy wouldn’t pay to replace it. However, if your HVAC system started a fire, your homeowner’s insurance would most likely cover the damages caused by that fire. Luckily, if your HVAC system does break down from old age, your home warranty will cover it.
What is the Difference Between Home Warranty and Home Insurance
A home warranty contract and a home insurance policy operate in similar ways. Both have a yearly premium and a deductible, although a home insurance premium and deductible is often much higher than a home warranty’s. The main differences between home warranties and home insurance are what they cover. Home insurance will help homeowners to pay for structural damage and loss of personal property from emergencies like theft or fire, while a home warranty covers repairs and replacements of a home’s systems and appliances when they fail from old age and normal wear and tear.
Another difference between a home warranty and home insurance is that home insurance is generally required for homeowners (if they have a mortgage on their home) while a home warranty plan is not required.
A home warranty and home insurance provide protection on different parts of a home, and together they can protect a homeowner’s budget from expensive repairs when they inevitably crop up.
A Home Needs Both: A Home Warranty and Home Insurance
Homeowners need both home insurance and a home warranty on their home to protect the structure and the home’s systems and appliances. If there is damage done to the structure of the house, the owner won't have to pay the high costs to repair it if they have home insurance. If the damage to the home's structure or homeowner's belongings was brought about by a malfunctioning appliances or systems, a home warranty can help to cover the costly repairs or replacement if the system or appliance has failed from normal wear and tear. If you have a home, consider purchasing both a home insurance policy and a home warranty. They will work together to provide protection on every part of your home.
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Everything you need to know about what a home warranty is, how it works and what it covers. Real estate professionals: use these articles to help your clients!
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