Owning a home is the one of the greatest investments you’ll ever make. Protecting your assets is not just smart—it’s necessary. The best way to do this is to purchase both a homeowner’s insurance policy and a home warranty. Purchasing both will cover your home, belongings, and appliances in case they need replacement or repair. But understanding the differences of the two products is helpful for any homeowner.
A home warranty is an insurance for parts of the home. Not the home itself, but it covers the home systems and appliances. Technically, it is a residential service contract that covers the wear and tear of things in a home.
Most homeowners have experienced an appliance breaking down. And when you own dozens of appliances, you’re exposing yourself to the risk of multiple items breaking down in a short space of time. Home warranty insurance could limit these losses.
There’s usually a service fee for calling out a technician, as well as a deductible and limit to the claim. This is to ensure that from the insurance company’s perspective, the customer doesn’t exploit reinsurance by renovating an old run-down house on the cheap.
So let's say your HVAC system stops working. In that case, a licensed technician will come out and assess the problem. If it's determined that the system is no longer working because of age or wear and tear and the breakdown is covered under the terms of your service contract, the service contractor will make the repair, or if necessary, will replace the appliance or system. You’ll be responsible for a one-time service call, and the home warranty company pays the rest. The protection of a home warranty potentially can save you hundreds or even thousands of out-of-pocket dollars. (Whew!)
Home insurance covers the home itself. Generally, it covers four aspects of things that could go wrong. Fire, theft, personal injury and bad weather. These things tend to be high-cost problems that result from disasters.
Though home warranty and home insurance sound related, they don’t overlap at all. Home insurance is a no-brainer whether you live in a hurricane-prone state like as Florida, or a tornado-frequented midwestern state. Because disasters like a fire can be so costly, mortgage companies will always require you to have home insurance.
If you don’t have a mortgage, then home insurance is still possibly mandatory by law, depending on where you live. Mistakes aren’t quite so high with appliances, which is why a home warranty insurance is voluntary.
Home warranties are not designed to protect you from disasters, rather, their value is determined on a case-by-case basis. For example, if you are having a new kitchen installed and all the appliances are brand new, it’s unlikely that you’re going to claim on a breakdown anytime in the near future. Therefore, you may want to factor in how old your appliances are, how prone to breakdowns they are, and how much it would cost to replace or fix them.
The final word
As a homeowner, it’s just plain smart to protect both the structure of your home and what’s inside. If there is damage done to the structure of your home, think of the money it could cost to repair or rebuild. And think of the headache it would be if your dishwasher and washing machine malfunctioned within days of each other. A home warranty and home insurance will work together to provide protection on every part of your home.
Because honestly. You can’t put a price on peace of mind.