What’s the Difference Between a Home Warranty and a Homeowners Insurance Policy?

Fran Majidi
February 21, 2019

People buying a new home may be trying to figure out if they need a home warranty if they already have a homeowners insurance policy. Long-time homeowners may be wondering if a home warranty will take care of fixes that a homeowners insurance policy will not cover on an aging home or luxury appliances. We break down the difference between a homeowners insurance policy and a home warranty so you can decide which suits your needs.

Homeowners Insurance vs Home Warranty: Are They the Same? This is most common question first-time homeowners have. This is a good question because it doesn’t assume that the two things are one and the same, because they are not.

What Is a Home Warranty and What Does it Include?

Essentially, a home warranty is a service contract that covers you for repairs or replacement of appliances (refrigerators, washer/dryers, garbage disposal etc.) and systems (heating, cooling, plumbing or electrical, etc.) within your home. There are additional warranties for pools and spa systems and more.

Home warranties are not mandatory but are a sort of insurance for the breakdown of essential systems and appliances not covered by homeowners insurance. Usually, warranties have 12-month contracts. If a system or appliance stops working, a licensed technician will come and assess the situation. A warranty covers failure due to age and wear and tear. The technician will make sure the breakdown is covered under the terms of the service contract before replacing or repairing the item. There is an upfront one-time cost for the service call (approximately $100), but the rest is covered under the warranty.

A home insurance policy will not cover appliances and systems due to wear and tear and age.

Do keep in mind that a home warranty will not cover anything that has been poorly maintained, a gray area that may frustrate the homeowner, especially if they inherited, say, a poorly maintained furnace when they purchased the home.

A home warranty is an important coverage to have for people with older homes with systems that have been in place for a long time and are more prone to break down.

A home warranty prevents you from having to find service technicians when in a bind. With that said, you cannot hire your own technicians. You also have little recourse for action if you believe a unit should be replaced but the home warranty company says a repair is sufficient.

Very affordable, a home warranty is a good investment that could save a homeowner hundreds, even thousands, of dollars if something breaks. There is usually a maximum pay out for repairs and replacements, however.

Warranty coverage may be denied for a whole host of reasons so it’s important to read the fine print. Reasons for denial include, but are not limited to, improperly installed items, item goes against current city codes, or items with a pre-existing condition.

A home warranty makes sense for people who own very expensive appliances and those who do not have an emergency fund if something breaks down. If you’re not handy and get gouged by service technicians, this option may lighten your burden.

When Should I Not Buy a Home Warranty?

If you have emergency funds to take care of expensive fixes, the money spent on a warranty (which doesn’t guarantee repairs/replacement) may be wasted, especially if years go by and you don’t use it. The money spent on monthly payments could’ve been added to your emergency funds.

What Is Homeowners Insurance Then?

A homeowners insurance policy covers damages caused by storms, accidents, burglary/theft, fire and some natural disasters. Flood and earthquake insurance are two separate types of policies you can add onto a homeowners insurance policy. Your home, your belongings and injured people are covered if injured/damaged as a result of covered perils, which include but are not limited to the items mentioned prior.

Basically, you are covered for your home’s exterior and interior as well as personal property if they are damaged due to covered perils. You are also protected from liability if someone is injured anywhere on your property.

Home insurance is usually required by the mortgage lender. Policies are usually renewed annually, and there is always a deductible on a homeowners insurance policy, which means that you determine how much you will pay towards covered damages before your carrier pays the rest. You choose your deductible amount when you set up your homeowners insurance policy but you can always change it.

What’s Covered by Homeowners Besides Storms, Burglaries and Fire? The following and more:

  1. If your fridge breaks down, your home warranty will cover the fridge but homeowners will cover the spoiled food.
  2. You’re covered for counterfeit bills (American and Canadian), if you happen to end up with one.
  3. Some policies cover cellphones, iPads and cameras, even when you are away from home.
  4. Changing your locks may be covered if you lose or misplace your keys.
  5. Explosions are covered by homeowners insurance.
  6. If your family member’s gravesite was vandalized, you may be covered (who knew?).
  7. A child away at college may be covered by your homeowners insurance if their dorm room gets broken into and items are stolen.
  8. You have coverage for children under the age of 13, if they break a window (or other a similar mishap).
  9. You’re covered if your home is struck by lightning.
  10. Volcano eruptions are covered (in case you live in Hawaii).
  11. Homeowners insurance will cover medical expenses and legal fees for events that hold you liable (i.e your dog bites the neighbor, someone trips on your property and chips a tooth, etc.).

So, What Is the Difference Between Homeowners Insurance and Home Warranty?

Homeowners insurance doesn’t usually cover equipment or systems that need repair or replacement unless they become damaged in a fire or another covered peril. However, homeowners insurance does cover some types of tears and overflows. Frozen pipes may also be covered by your homeowners. It’s important to go over your policy with your agent so you’re in the know about what’s covered and what’s not: each policy/carrier is different.

Homeowners insurance is more expensive than a home warranty but it also covers a greater amount of risk. There are sometimes overlap in coverages with homeowners insurance and a warranty. For instance, say you needed plumbing repairs. You’d be covered by both the home warranty and your homeowners insurance. You can choose which to use, but often, the home warranty option is cheaper (you’re paying $100 versus your homeowners insurance deductible)..

Not Sure About Buying a Home Warranty?

You may want to consult the person who inspected your home, if you recently bought your home or have not yet bought it yet. They may be able to tell you how long you have before major systems may need repair or replacement. This is good to know before deciding if this type of warranty makes sense to buy just yet. Chances are that if you have new construction home you won’t need it as much as if you buy a 30 or 40-year old home.

Can I Buy a Home Warranty for a Condo?

Yes, any residential property owner can buy a home warranty.

Can I Get a Home Warranty for Free?

Some real estate agents or brokers may offer a free home warranty as part of the selling offer. Usually, the term for the warranty is only one year with basic coverage. Not all home warranties are the same. Some only cover the bare minimum.

Whatever you decide to do, whether it be to buy homeowners insurance, a home warranty or both, it’s important to compare rates and policies so you get the most for your money. You don’t have to pay too much for homeowners insurance if you find an agent through SmartFinancial by visiting here. If you’re thinking about switching to a more affordable homeowners policy but are confused about how to transfer one policy to another, read this article.

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