Home Warranty vs. Home Insurance

While a home warranty covers major home systems and is optional, home insurance is usually required for all homeowners. 

You're ready to buy your home and make it your own, but how do you protect it? A home warranty and home insurance can offer protection if something goes wrong with your home. However, each serves a different purpose and will cover you in different cases. Read on to understand a home warranty vs. home insurance to make sure you're covered — whatever comes your way!

What Is the Difference Between a Home Warranty and Home Insurance?

Home warranties and home insurance protect you in different cases. A home warranty is a type of service contract that covers major home systems and appliances in case they breakdown. Home warranties typically cover normal wear and tear or appliance issues of the home. 

For example, if your HVAC system stops working, a home warranty should pay for a technician to come and fix the problem. It will also typically cover the cost of a replacement or repair. 

In contrast, homeowners insurance has a broader scope but also other limitations. It covers the entire home for specific perils and will typically cover other structures on your property, like fences or sheds.

Home insurance doesn't cover normal wear and tear. Instead, it pays for damage from sudden, unexpected events like natural disasters (fires, hurricanes, flooding, windstorms, etc.) or theft. However, many homeowners insurance companies have an optional add-on for equipment breakdown insurance. 

Equipment breakdown insurance will cover damage to appliances or household systems from sudden electrical or mechanical failures, such as power surges or a water pressure rupture. However, it still won't cover normal wear or tear. 

What Is a Home Warranty?

A home warranty is additional coverage you can purchase as a homeowner. You'll buy a home warranty from a third-party company that provides coverage for certain items within the home. 

These policies cover your costs in case covered systems or appliances break or fail. For example, if your covered refrigerator stops working, a home warranty will cover repair or replacement.  

Depending on the policy, you may be responsible for a service fee stated in the contract. Fees usually range from $50 to $150. You can learn more about home warranty costs or consider the best home warranty. 

What Does a Home Warranty Cover? 

A home warranty typically covers major appliances and home systems. You can choose from warranties that include appliances and home systems or combination policies that cover both.

• Appliances: If typical home appliances like refrigerators, stoves, ovens, dishwashers, washers, dryers, or built-in microwaves fail, you can claim with the warranty. The company will send a technician to repair the appliance. If it cannot be repaired, the warranty company should replace it (depending on the stated coverage).
• Systems: This covers electrical systems, plumbing systems and HVAC systems in the home and may also cover other systems like septic systems, the roof, or even alarm systems. The warranty company will send the proper contractor to repair the problem after you file a claim. 
• Add-ons: These will cover appliance and systems policies in a single (usually more expensive) warranty. 

What Is Not Covered by Home Warranty?

Even with a system or appliance failure, it might not be covered by your home warranty. For example, the home warranty doesn't cover structural issues. It also doesn't cover repair due to misuse, abuse, accident, or natural disasters. 

Most home warranty companies limit how much a single repair can cost and may also limit the total annual payout. For example, a refrigerator repair or replacement might have a $1,000 limit. if your high-end refrigerator fails and requires a repair item that costs $1,200, you'll have to pay the difference out of pocket. 

Who Should Buy a Home Warranty?

A home warranty isn't a fit for every home. For example, an appliance warranty might not make sense if you have older appliances that would cost less to replace than the warranty cost. Here are examples of when a home warranty makes sense:

• High-cost appliances: If you have invested in high-end appliances or appliances with a history of breakdowns, a home warranty can give you peace of mind. 
• Older homes: If you have a home with systems or appliances that are out of warranty, home warranties can cover breakdowns. 
• Those who prefer low hassle: If you don't want to worry about contacting individual technicians, a good home warranty provider can simplify the process and be worth the low-hassle service cost. 

What Is Home Insurance?

An insurer issues Home insurance to protect your investment in your home in case of accidents, building failures, and natural disasters. Homeowners insurance may offer general liability insurance if someone is injured on your property. 

If you use a mortgage to purchase a home, the lender usually requires you to carry homeowners insurance. Different homeowners insurance policies cover specific perils. Usually, homeowners insurance is divided into coverage for the dwelling, other property structures, personal property (such as furniture, electronics, and belongings in the home), and liability. 

Homeowners insurance policies cover destruction and damage to the home's interior and exterior. In most cases, insurers offer three basic levels of coverage: the actual cash value, the replacement cost, and the extended replacement cost or value. Your homeowners insurance may also have a stated maximum coverage amount. 

What Does Home Insurance Cover?

Here is a detailed overview of the types of coverage you can expect from home insurance: 

• Dwelling (home): This covers the cost of home repairs or damage due to covered events. Depending on your policy, this may include fire, storm damage, fallen trees, vandalism, theft, or other unforeseeable events.
• Other structures: This typically includes fences, storage sheds, detached garages, guesthouses separately from the home, and other external structures.
• Personal property: Also called contents insurance, this covers the financial losses of items within the home, including furniture, electronics, and other valuables. For example, if a plumbing leak ruins your carpet, insurance may cover the replacement.
• Liability: This will protect you in case someone is injured on your property. It also typically covers accidental damage to another person’s property.

If you need to make a claim, you will need to follow the individual insurer's procedure. Then, it will usually send an adjuster to assess the damage and assign a value to the claim. In some cases, you could also get vacant home insurance or qualify for home insurance discounts to save more. 

What Does Home Insurance Not Cover?

Home insurance only covers certain perils. Since every policy differs, reading your policy and understanding the covered risks is essential. There are at least eight types of home insurance. 

In general, most home insurance does not cover:

• Earthquake damage
• Flood damage
• Maintenance issues
• Issues that arise from neglect, misuse, or normal wear and tear.

In most cases, the home insurance policy also has a maximum limit. You will typically have a stated deductible unless you choose a policy without a deductible. 

Who Should Buy Home Insurance?

Everyone should buy home insurance. However, here are a few specific examples:

• New homeowners: When you buy a home with a mortgage, you'll be required to get home insurance, which will protect your investment and help protect the lender from losses. You'll initially get a home insurance binder.   
• Retirees without a mortgage: If you own your home outright and something happens to it, you risk losing your home or the equity you've built. Therefore, the nominal cost of home insurance can protect your finances and your home. 
• Real estate investors: To protect your equity in a property, home insurance to cover major perils is essential. 

Compare the Best Home Insurance Providers From Benzinga’s Top Partners

You can compare the best home insurance providers from Benzinga's top partners here. 

Do You Need a Home Warranty vs. Home Insurance?

The choice between a home warranty vs. home insurance comes down to your home and personal financial preferences. Every homeowner can benefit from home insurance. However, whether you need a home warranty depends on the age and coverage of appliances and home systems and whether you'd rather pay for repairs out of pocket or work with a warranty provider. You can also consider vacation home insurance or compare insurance prices before shopping for the best coverage.

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