Your home is one of the most significant financial obligations you'll have, so it goes without saying, it’s important to protect it. Protection for your home comes in two different forms—home warranties and home insurance. While both of these products seem similar, they have some substantial differences you should know about.
If you're unsure what type of protection you need for your home, keep reading. We’re breaking down home warranty vs. home insurance and which is best suited for your situation.
Defining Your Home Protection
It's impossible to know what might happen in the future—floods, fires, appliance malfunctions—so it’s crucial to ensure you don't have to pay for expensive repairs out of your own pocket. Both a home warranty and a homeowner insurance policy help mitigate your financial liability, but they do so in different ways. Also, it’s important to note that while a warranty is purely optional and free, you may have to buy home insurance, particularly if you're paying a mortgage.
What Is a Home Warranty?
A home warranty is a protection plan that covers the home's internal systems (i.e. heating and cooling) and appliances. Sometimes, a warranty may come with the house if the seller offers it. Otherwise, you can buy a warranty yourself through a third-party provider. If you buy a new construction home from a builder, limited warranty coverage will often be included with your purchase.
With a home warranty, if something breaks, you contact the warranty company and they send a technician to inspect the problem. The technician determines whether the part needs repair or replacement and whether the warranty covers it. If it is covered, you're reimbursed for the service visit and can start on repairs. If the warranty doesn't cover the problem, you have to pay for the service visit and any repairs out of pocket.
What Is Home Insurance?
Home insurance is a coverage plan that offers financial protection from various disasters. Homeowners insurance is far more comprehensive than a warranty because it covers the home, any structures attached to the house (i.e. the garage), and even unattached structures (e.g. a carport or gazebo).
Home insurance policies also offer liability protection and extend to your belongings. That said, the payouts for each type of coverage are different. For example, you may get the total replacement cost for your home itself but an actual cash value (including depreciation) for your belongings.
Home Warranty vs. Home Insurance: Coverage Comparison
Now that we've covered the basics of home warranties and home insurance, let's look at what's covered and what isn't. Since the purpose of both is financial protection, it's imperative to know these details before deciding which one is right for you.
Home Insurance Coverage
Most incidents are covered by home insurance. Generally, companies break down the policy into different sections:
- Coverage A—This covers the physical structure of the property, as well as anything detached from the home.
- Coverage B—This section covers your personal belongings, including clothing, appliances, jewelry, and more.
- Coverage C—This section provides liability protection for you and anyone else on the policy. Liability claims can include accidental injury (i.e. a slip and fall) or injuries from pets.
- Coverage D—If you need to move out of the house while it's being repaired, you can receive additional living expenses to pay for hotel and transportation costs.
The coverage limits for each section depend on your policy, and you can always adjust the limits with your insurance provider. Most incidents are covered by the plan, including storm damage, wind and hail, fire, falling objects, and vehicle damage (e.g. if a car crashes into the house). However, natural disasters like flooding, earthquakes, and hurricanes are usually not included and require additional insurance.
Home Warranty Coverage
A home warranty only covers appliances and internal home systems. These systems include electrical, heating and cooling (HVAC), and plumbing.
Also, be aware that the warranty only covers existing systems and damage that occurs after the warranty goes into effect. So, if an appliance has a damaged component before you get the warranty, it won't be covered. Similarly, updating any of your home's systems will likely void the warranty, meaning you have to get a new policy.
Finally, not all elements of your appliances may be covered by a warranty. For example, the warranty company may exclude the ice machine or water dispenser in your fridge from your plan. Always read through the warranty policy so there are no surprises later on.
The Claims Process
The claims process for both types of protection is very similar. First, you need to contact your provider and file an official claim. Insurance companies will send a claims adjuster, while a warranty company will send a proprietary technician. Both individuals will tell you whether the damage is covered and what they recommend regarding repairs or replacement.
Where these policies differ is how you can fix the problem after the inspection. With home insurance, you can work with any contractor or repair person. That person will get paid from the insurance company directly, or you can pay them from your claim check.
With a home warranty, though, only an approved technician can do the work. If you do your own repairs or hire an outside contractor, you void the warranty and have to pay out of pocket.
Who Should Buy Home Insurance or a Home Warranty?
If you're taking out a mortgage loan, the lender will often require homeowners insurance. Even if you own the home outright, it's still smart to have a policy to pay for damages.
Home warranties are ideal for newer homes since the appliances and internal systems will last longer. If you get a warranty on an older home, it's much harder to determine if any damage happened recently or before the warranty took effect.
Realistically, a warranty doesn't replace home insurance, but it can offer extra financial protection so you don't have to pay for repairs out of pocket.
Consider Your Options
When looking at a home warranty vs. home insurance, it makes sense to buy homeowners insurance no matter what. Repair costs are expensive, and the costs of homebuilding materials rise every year. So, even though insurance is a substantial expense, it's worth the investment.
A warranty also makes sense if you're buying a new construction home (or a home that's less than five years old). In fact, some developers may offer warranties when you buy the house to help sweeten the deal. Otherwise, if you’re buying an older home, a warranty may not provide sufficient coverage. However, if you update individual appliances, you can get warranties for each device.
If you’re looking for a new home with low maintenance, cheaper homeowners insurance, and the potential for added protection with a home warranty, check out our new construction homes today!