For inexperienced homeowners and first-time buyers, the difference between home warranty and home insurance might seem all too subtle and difficult to distinguish. This isn’t too surprising, as the terms “warranty” and “insurance” are used almost interchangeably in other circumstances. Though their meanings are somewhat similar, when it comes to purchasing certain services and contracts from financial companies in that particular line of business, there’s actually a world of difference between home warranty and home insurance. Let’s see some common misconceptions and frequently asked questions regarding the difference between these two concepts.
– What is home warranty and what is home insurance?
Home warranty is a service contract that covers only certain systems and appliances in your home, such as your dishwasher, toilet, plumbing, air conditioning, internal wiring, and so on. This type of coverage plan serves to minimize your costs if one or more of these systems or appliances break down.
Home insurance, on the other hand, covers your entire home and provides insurance in case of natural disasters and calamities such as fire, flood, tornado, hurricane, and so on, as well as in case of theft. It also covers personal liability. Home insurance is usually required when you are purchasing a home with a mortgage loan. It covers the house itself – the structure, as well as your personal belongings and valuables.
– Is home warranty provided by the same companies that provide home insurance?
Generally speaking, no. Home insurance is usually purchased through one of the many well-established insurance companies that provide other types of insurance as well, such as car insurance, life insurance, health insurance, and so on, and there are also companies specializing exclusively in home insurance. But the bottom line is – they are all insurance companies.
Home warranty, on the other hand, is usually provided by companies specializing in this particular service alone. Those are generally smaller companies, often regional, working with a much smaller network of professionals and with far fewer customers.
Of course, some insurance companies offer a wide array of services and home warranty may be one of them. But if you are looking to purchase home warranty, it’s probably best to look specifically for home warranty companies.
– What is the difference in the way home insurance and home warranty are regulated?
Home insurance is regulated by state authorities (insurance commissioners) and home warranty is definitely more loosely regulated. Because of this, it’s particularly important to always carefully read all the fine print and terms and conditions of your contract. This, of course, applies to home insurance policies as well, but when speaking of home warranty contracts, there seems to be more room for misinterpretation and even some manipulation. Home warranty is also more variable and its terms often differ depending on the company.
– Does home insurance cover more stuff than home warranty?
Definitely, yes. If you have a home insurance policy and, say, there is a fire that destroys both the structure of the house (walls, floors, rooms, everything) and your possessions inside the house (from your personal belongings to your appliances), the insurance will cover everything. That includes your refrigerator and freezer, your washer and dryer, your AC system, everything that’s normally included in a home warranty policy.
As far as home warranty is concerned, it only covers your systems and appliances, and not even all of them – just those that are included in your specific home warranty plan. In most cases, we are talking about the basic home systems and appliances, excluding the commercial-grade ones, ones that have been misused and improperly installed, and so on.
– Do I still need home warranty if my house is insured?
Yes, you do. This is because home warranty protects you in case of common, frequent breakdowns and malfunctions that happen all the time in an average household. When your heating system breaks down all of a sudden, your home warranty will cover the costs of the repair or replacement, not your home insurance. Home insurance will only cover damage and loss due to calamities, disasters, and theft.
– Am I required by law to have home insurance? How about home warranty?
Generally, there is no law that says you should have either of these forms of protection. However, if you are buying a home with a mortgage, the lender will probably require you to have home insurance coverage.
Home warranty, on the other hand, is completely optional. You can weigh all the pros and cons of home warranty and decide whether you want or need one.
– Does home warranty require underwriting?
No. Unlike home insurance, most home warranty companies do not require any form of underwriting. Underwriting means that your home needs to be inspected and evaluated in terms of age, location, and quality of construction. The cost of the insurance policy will depend on those factors and in some cases, they may even deem a house uninsurable. As for home warranty, all customers in the same area, regardless of the type and age of the house, pay the same home warranty plans.
– Is home warranty renewed automatically?
No. In most cases, home insurance renews automatically as long as you pay the premiums. Once you sign the contract, all you need to do is to keep making timely payments and you don’t have to worry about policy expiration and renewal.
When speaking of home warranty, this type of service lasts for a specific period of time, usually up to 12 months, after which the company may remind you that your contract has expired and ask you whether you are interested in renewing or signing up again.
– Which is cheaper?
It’s difficult to answer this question because both home warranty and home insurance depend on a variety of factors. Some home warranty companies offer fixed plans and others have different pricing depending on your location and some other factors. Insurance also varies from state to state, the precise location of your home, its general condition, and the extent of the coverage.
Still, it’s safe to say that standard home warranty coverage ranges from $300 to $500 per year while home insurance may go from $300 to $1000 per year.
– Does home insurance include contractors?
No. If something happens to your home, your insurance will cover the repair costs, but you will have to find contractors and technicians. Home warranty works exactly the opposite way. When you call the company to make a complaint, they send you one of the contractors or qualified technicians from their own network of trusted, pre-screened, and monitored professionals. That way not only you don’t have to pay for the repair, you don’t even have to bother looking through the white pages for a good repairman.
– Should I choose between home insurance and warranty or should I get both?
This decision is, naturally, entirely up to you, but most experienced homeowners, landlords, and real estate professionals will tell you that you should probably get both. And here’s why.
Home insurance provides protection (or a fall-back) in case of rare but possible occurrences such as fire, flood, earthquake, robbery, and so on. It also protects you from personal liability; if something bad happens under your roof, you won’t get sued.
Home warranty, again, covers the expenses you have when a major system or appliance in your home breaks or stops working. This is definitely more likely to happen than an earthquake, but the damage is, of course, far less extensive, and also cheaper. It’s basically like buying an extended warranty for each appliance.
So if you opt for both home insurance and home warranty, you will be almost completely covered. Home insurance will protect your house whereas home warranty will help you reduce the costs of repairing and maintaining the things you fill your home with. One doesn’t exclude the other, in fact, these two types of protection complement each other perfectly.