Home warranties and home insurance both offer valuable safeguards for homeowners, but they protect against different types of risks and serve different purposes. Learning the difference between the two can help you decide if you need one of them, both of them, or neither of them.
A home warranty is a service contract that covers the repair or replacement of the major systems and appliances in your home that fail due to normal wear and tear. This includes the heating and cooling systems, the plumbing and electrical systems in the home, and the appliances such as refrigerators, dishwashers, ovens and more. A home warranty is not required by the lender, and it is normally purchased by the homeowner to protect against high repair costs, especially for homes with older systems and appliances.
Unlike home insurance, which pays for the replacement or repair of your home and your belongings if they’re damaged by fires, storms, vandalism or theft, home warranties cover the repair or replacement of systems and appliances that are damaged or break down due to wear and tear. Home warranties are also different from homeowners insurance in that mortgage lenders require homeowners to not a home warranty. While a typical home insurance policy will pay for repairs or replacement of damaged systems or appliances if they are damaged by a covered event, a home warranty will pay for the repair or replacement of items that aren’t damaged by a covered event, but simply break down due to normal wear and tear.
The most important difference is that home warranty protects against breakdowns that are predictable and common, whereas home insurance provides coverage against disasters that occur suddenly and unexpectedly. If your water heater stops working because its parts have worn out over time, the home warranty will cover repair or replacement. If a tree falls on your house during a storm and breaks the roof, the home insurance will cover the repairs.
Moreover, home warranty premiums are usually much lower than home insurance premiums. A home warranty can cost between $300 and $600 per year, whereas home insurance is more expensive because it provides protection for more catastrophic events. That being said, home insurance premiums often have higher payout limits, where your home and contents are covered up to their full replacement cost.
You can have both as a homeowner. Home insurance is an important policy to protect you from the major loss of your home and belongings. A home warranty can be your protection for the smaller, more frequent costs associated with a home and its content. Together, these protections can be an important financial safety net for your home.
