Home Warranty vs. Home Insurance – Which is better?
Buying a home can already be very taxing, but what do you do if something awful happens, such as an accident or a fire in your home, and you have to repair and replace all the damages completely out of your own pocket? This is where home insurance and home warranty come into play.
Home warranty and home insurance might sound the same to you, and some people may even tell you that they are the same thing and that you don't need to get one if you already have the other. It is better to educate yourself to know what they mean and what coverages they offer so that you can decide which one you need to safeguard your home.
What is the difference between a Home Warranty and a Homeowner's Insurance?
What Does a Home Warranty Cover?
A home warranty would be a service agreement that helps cover the cost of repairs and replacements for eligible home systems and appliances. You receive a fixed rate for service calls for the monthly or yearly fee.
If an appliance and system insured by your plan malfunctions, your home warranty provider will send professionals to diagnose and fix the issue. You will only be responsible for the service call charge. These policies have coverage limitations: A plan may cover up to $1,500 per year per qualified equipment, with a $15,000 annual claim maximum.
What Does a Homeowner's Insurance Cover?
Home insurance is a type of property insurance that protects against damages and losses resulting from insured dangers. A conventional homeowner's insurance policy contains the following four categories of coverage:
- Coverage for the home's structure. This pays to restore or rebuild the home if destroyed or damaged by a risk covered by the policy. The majority of insurance also covers buildings such as garages, tool sheds, porches, and gazebos.
- Coverage for individual possessions. This policy protects your furniture, clothing, sports gear, and other things if they are taken or damaged by a covered risk. You may require a particular personal property endorsement or a floater if you own valuable items to be appropriately insured.
- Liability insurance. Liability coverage protects policyholders, their families, and their pets against lawsuits involving injury or damage to property they cause to third parties.
- Additional costs of living This covers hotel stays, food, and other living costs if your home is rendered uninhabitable by a covered hazard.
The difference is quite straightforward, a home warranty and a homeowner's insurance complement each other. What one doesn't cover, the other will. A home warranty provides repair or replacement on any major household appliances when they stop working naturally. However, if those appliances or items are damaged due to an accident such as a fire or storm, then your homeowner's insurance will financially cover it.
What is a Home Warranty?
A home warranty is simple – it is a premium that you pay monthly or annually, which offers to repair or replace your household appliances or home systems when they break down or wear out. The number and range of household items depend on the type of coverage plan that you buy from your home warranty company.
Usually, a home warranty provides premium discounted service for replacing and repairing household items, such as ovens, refrigerators, HVAC, and sometimes even your roof. It is inevitable that these appliances and home systems will eventually wear out, and your toilet and roof may leak from time to time. This is when a home warranty will help you find a reliable contractor to fix these damages, and if your coverage plan covers it, then they may even replace a new one for it.
Features of a Home Warranty
Most mechanical systems and appliances are prone to break down after a while. A home warranty ensures protection against unexpected financial burdens when you have to repair these items.
Most home warranty companies in the U.S. offer major appliances such as ovens, dishwashers, and refrigerators. They also cover major home systems such as heating, electrical, air-conditioning, and plumbing repair expenses. However, the number of appliances they cover depends on the home warranty provider and the plan you choose.
You can also purchase extra “add-ons” to cover other appliances that are not added to the plans. Most people include items such as pools, spas, septic tanks, and roof leaks.
Most home warranty companies offer extensive plans and options to choose from. The common coverage plans may include:
- Appliance plans – for basic major appliances such as dishwasher, clothes washer, oven, refrigerator, etc
- System plans- for electrical, plumbing, and heating systems
- Additional coverage plans – where you can add extra items such as pool, alarm systems, etc.
Usually, you have to wait for 15 to 30 days before you can call for a service in your home warranty.
Some of the best home warranty companies in the U.S. and their major features are listed below:
| HVAC | Plumbing | Electrical | Roof | Mold | Major appliances covered | |
| American Home Shield | ✔ | ✔ | ✔ | ✔ | ー | 23 |
| Select Home Warranty | ✔ | ✔ | ✔ | ✔ | ー | 16 |
| Choice Home Warranty | ✔ | ✔ | ✔ | ✔ | ー | 13 |
| The Home Service Club | ✔ | ✔ | ✔ | ✔ | ー | 23 |
How much is a Home Warranty?
You have to apply for a monthly or yearly plan, and most commonly, they range from $300-$600 annually, depending on the coverage plan from your home warranty provider. After you purchase the premium, whenever your household items are down, you can call them, and they will send a contractor to your home within 1-2 days.
Then you have to pay a service fee for the contractor's service, which can cost about $60-$100 each time. The amount of the service fee depends on your chosen plan, but usually, the more your monthly premium is, the less the service fee.
What is Home Insurance?
Unlike a home warranty, homeowners insurance is a different issue. If you are buying a new home, then you should apply for home insurance. If you have a mortgage on your house, you may be required to purchase home insurance from your mortgage lender in order to protect your house.
Home insurance covers losses and damage, financially or otherwise, caused by perils such as a fire or storm. If any part of your house is damaged due to unforeseen events, or even theft, your home insurance will pay to rebuild or replace the damaged part.
For instance, if your windows break due to a storm or hail, your home insurance will cover the repair cost. However, if your refrigerator breaks down, your insurance will not cover the expenses of repairing or replacing the refrigerator, but your home warranty will.
What does Home Insurance Cover?
In a situation of damage, a conventional homeowners insurance policy will pay to restore or replace your house and its contents. This often covers damage caused by fire, smoke, theft, vandalism, and weather-related events such as lightning, storm, or hail. Other covered damages may be caused by external factors, such as a falling tree.
This policy covers your HVAC equipment, as well as your kitchen appliances, furniture, clothes, and other belongings. Coverage is also provided for outbuildings, including a garage, barns, or shed, outdoor grills or fires, play equipment, walls, or fences. A swimming pool and other outdoor equipment may be insured; however, these higher-risk goods may require supplementary liability coverage.
The Insurance Information Institute (III) states that a typical home insurance policy has four basic kinds of coverage:
- Coverage for home structure: this covers the damages to your home structure but may also include other structures on your property, such as the shed or garage
- Coverage for personal assets: these include belongings in your home that might be stolen or damaged (furniture, clothing)
- Liability coverage protects you from any lawsuits or injuries that the policyholders or anyone living in your house may cause to others. The insurance may also pay for your medical expenses for people hurt on your property.
- Additional expenses: covers the hotel bills or extra living expenses while your home is being repaired.
Standard home insurance includes recovery from perils caused by fire, theft, and lightning, and extended coverage may include hail, riot, explosion, smoke, vandalism, vehicles, windstorm, volcanic eruption, snow, etc. A standard home insurance policy may not cover damages caused by floods and earthquakes, and you may be required to purchase an additional policy in order to get those covered.
The National Association of Insurance Commissioners is an amazing resource for finding out more about home insurance policies and understanding what a typical homeowner's insurance covers.
How much is Home Insurance?
According to the NAIC report in 2019, home insurance typically costs about $1,211 annually. However, it may change depending upon several factors such as:
- Your location
- The size of your house
- Your credit score and marital status
- The condition of your house
- The history of your insurance claims
- Your insurance plan deductible and coverage scheme
Average Cost Of Homeowners Insurance By Location
Insurance prices vary depending on the region. For instance, states with a greater chance of severe weather, hurricanes, and tornadoes would often have higher insurance rates owing to the increased danger of property damage.
Since hurricanes, floods, and tornadoes do not threaten Oregon, Utah, and Nevada, their insurance costs are lower.
States with the Most Expensive Home Insurance
- Texas: $1,955 annually
- Florida: $1,960 per year
- Oklahoma: $1,944 per year
States with the least expensive home insurance
- Oregon: $706 annually
- Utah: $730 per year
- Nevada: $776 per year
In addition, your location inside a state is among the most significant elements that might impact the cost of your homeowner's insurance. In densely populated metropolitan regions, real estate values and building expenses are often more critical, and the amount of coverage you require is proportional to the property's value.
If you reside in a location with expensive real estate, you will pay more for house insurance since it will price more to reconstruct your home.
Another thing that may cause your home insurance cost to vary is pets, most commonly the breed of your dog. Some insurance companies tend to charge more for “dangerous” dog breeds such as Pitbulls and Rottweilers. Please check with your chosen home insurance company to see if they have these certain exclusions.
When you buy a home insurance premium, you can file a claim whenever your house has been damaged. They will accept the claim and pay for your loss if the damage is under your insurance policy. Generally, you have to pay a deductible, which is a fixed amount of money that you pay out of your pocket, and only after that the home insurance company will pay the rest of the claim, up to their policy limit. A deductible may cost you around $100-$1000, depending on the policy you buy. Usually, the more deductible you pay, the less the annual premium for the home insurance is.
The bottom line
In a nutshell, a home warranty and home insurance are not the same, but they complement each other. You should not think that getting either one is enough to cover everything in your home. Both have different plans and different coverages for certain kinds of situations, and it is better to know which is which before you can choose the best one for you.
A home warranty will pay for repairs and replacements to the home appliances and systems you own, whether it is a washing machine or a kitchen sink, when it naturally wears down or breaks down over time. You can buy a monthly or annual premium and pay a small service fee every time you claim a damaged item.
On the other hand, home insurance is insurance for your home as a whole from damages caused by sudden perils such as a fire, theft, or snowstorm. You can purchase a monthly premium and choose a deductible you can afford.
In both cases, these policies safeguard your home from sudden accidents and unforeseen circumstances which can leave a hole in your pocket. They work hand-in-hand to provide the best protection to every part of your home.
