Important points to remember:
- Home insurance provides coverage for damage to your home and personal belongings caused by unexpected events.
- A home warranty covers repairs and replacements of appliances and systems due to normal wear and tear.
- It is highly recommended to have both home insurance and a home warranty, although only home insurance is mandatory.
Many people mistake home insurance and a home warranty as the same thing, but they have distinct differences. Whether you’re looking to purchase a home in Cincinnati, OH with Redfin, renovating a rental property in Nashville, TN, or researching before moving out of your apartment in Seattle, WA, understanding these terms will ensure your home is fully protected.
Comparison between home warranty and home insurance
| Feature | Home warranty | Home insurance |
| Required? | No (optional) | Yes (by lenders) |
| Coverage | Home structure, additional structures (sheds, fences, etc.), personal belongings, and liability | Appliances and home systems (HVAC, plumbing, etc.) |
| Cause of damage | Unexpected events (storms, fires, break-ins, etc.) | Normal wear and tear |
| Cost | Average $1,411 per year | Average $350-$600 per year |
Understanding a home warranty
A home warranty offers coverage for your home’s systems and appliances, such as washing machines, water heaters, and electrical systems. These items experience normal wear and tear, and a home warranty assists in paying for necessary repairs or replacements.
While not mandatory, it is advisable to have a home warranty. The cost of the warranty varies based on the chosen company, but you can purchase a home warranty at any time.
Who should consider purchasing it
- Homeowners with outdated or out-of-warranty systems and appliances
- Buyers who may struggle to afford sudden repair costs out of pocket
- Individuals lacking a trusted professional for repairs
Insight into home insurance
Home insurance covers the home itself, along with other structures like a workshop or shed that may not be permanently attached. If your house or belongings sustain damage due to unexpected events, such as natural disasters, home insurance will cover the costs of repairs or replacements.
When obtaining a mortgage, home insurance is compulsory, as lenders will not approve the loan without it.
Who should invest in it
- Anyone securing a home loan
- Property owners seeking to safeguard their home and personal belongings from damage or loss
- Individuals desiring liability coverage in case of injury on their property
Coverage comparison between home warranty and home insurance
A major distinction between a home warranty and home insurance is the type of damage they cover. While a warranty addresses wear and tear on appliances and systems within the house, home insurance deals with structural damage and loss of personal belongings from unexpected events like fires and storms. Here’s how these coverages operate in real-life situations:
- Scenario 1: You discover your dishwasher still has dirty dishes from last night, and a spray arm has broken off. A home warranty will cover the repairs or a replacement dishwasher.
- Scenario 2: During a severe windstorm, a falling tree damages your roof and crushes your bicycle. Depending on the policy, your home insurance will pay for roof repairs and replacement of the damaged bike.
- Scenario 3: While you’re away on vacation, your toilet leaks, causing significant water damage. Your home warranty will cover toilet repairs or replacement, while home insurance will cover the repairs for the damage and any lost personal items.
Is it necessary to have both home warranty and home insurance?
Lenders mandate home insurance before approving a mortgage to safeguard their investment. If you purchase a house outright with cash, you can avoid a mortgage and proof of home insurance initially, but it’s still prudent to have coverage. Instead of completely forgoing it, determine the amount of home insurance you require and collaborate with your insurance provider to tailor coverage that suits your needs.
Although a home warranty is optional, the cost is usually justified for peace of mind. The average cost ranges from $350 to $600 per year and could potentially save you thousands if an appliance or system malfunctions and needs replacement.
While it may seem like a choice between a home warranty and home insurance, having both offers the best protection. New homeowners often encounter unexpected appliance failures in their first year. Adding a home warranty on top of your home insurance helps cover those expenses, preventing hefty repair bills right after moving in.
Frequently Asked Questions about Home Warranty vs. Home Insurance
What sets home warranty apart from home insurance?
A home warranty covers repairs and replacement of appliances and systems due to wear and tear, while home insurance safeguards your home and belongings from unforeseen events like fires, storms, or theft.
Is home insurance obligatory?
Yes, proof of home insurance is required by your lender when signing your closing documents to finalize your mortgage.
Can I purchase a home warranty after moving in?
Yes, you can buy a home warranty at any time or cancel it at any time. Check with your provider for specific details about your policy, and be aware of any cancellation fees.
Does home insurance cover appliance breakdowns?
No, home insurance does not cover appliance breakdowns, although it may cover damage caused by an appliance breakdown, such as a dishwasher leak.
Is it necessary to have both a home warranty and home insurance?
For comprehensive protection, it is advisable to have both. Home insurance is crucial for disaster protection and recovery, while a home warranty saves you money on routine home maintenance and repairs.
Can a seller include home warranty coverage during a sale?
Yes, it is common for home sellers to provide a one-year home warranty in a home sale. This attracts more buyers as it gives them peace of mind during their initial year of ownership.
Choosing between a home warranty and home insurance: why not both?
When weighing the decision of home warranty vs. home insurance, it’s evident that both serve distinct and significant purposes. Home insurance is essential for safeguarding against disasters and major losses, while a home warranty assists in covering wear and tear on appliances and systems. Together, they provide comprehensive protection and peace of mind for homeowners. Whether you’re investing in a new home or looking to enhance the protection of your current residence, consider opting for both.