Home Warranty Vs Home Insurance: Which Do I Need?
For many homeowners, a home insurance policy seems like it might be enough to cover major home expenses. If you have a fire or water damage, you are probably covered. But there are some situations where insurance isn’t much help.
Imagine you have just bought your home and are getting settled in. Everything seems to be going just fine until you try to use the dishwasher… and nothing happens. It doesn’t work.
Having gone through the expense of buying a home, it is likely that you are not excited about the prospect of forking out more money so soon to get your dishwasher replaced or repaired.
With a home warranty, you may be in luck. Warranties cover some of the gaps in insurance coverage. Your insurance company might not cover items that have broken down due to wear and tear.
Home warranties save you hundreds or thousands of dollars by covering major appliances that insurance does not.
A home warranty and home insurance policies offer different kinds of protection for homeowners and their property. Because they cover very different areas, a homeowner should consider both.
What's the difference between a home warranty and home insurance?
Let’s explore the difference between the two and how they each benefit homeowners.
Home warranties cover the cost of repairing and replacing broken or defective appliances. Unlike an insurance policy, warranties don’t cover the structure of the house (windows and doors).
Rather than covering the entire house, home warranties are primarily for specific parts of it. Warranties can, however, be applied towards plumbing and electrical work.
Now, home warranties don’t guarantee that every appliance will be eligible and there are restrictions such as:
- Rules regarding how claims are made and how repairs or replacements will be made
- You might only be able to use specific repair companies
- There may be monetary limits per repair
- You may not have a choice in the model that replaces your appliance
- Appliances already under manufacturer's warranty may not be covered
- On the subject of manufacturer's warranty and home warranties: Manufacturer’s warranties are often more expensive than home warranties as you are paying for individual plans. With a home warranty, there is only one plan and you are covered for the replacements of parts and for the labor needed to fix the appliance. In contrast, manufacturer’s warranties may just cover defective parts.
A standard warranty plan includes coverage for:
- Air conditioning and central heating
- Kitchen appliances
- Washer and dryers
- Water heaters
If you are thinking about getting a home warranty, you don’t have to worry about a home inspection. The appliances you want covered just need to be installed, maintained and in good condition as pre-existing issues.
So, should you get a home warranty? It depends.
If an inspection for a home with past owners has revealed that a few of your major appliances are nearing the end of their lives, a warranty may be a good way to avoid future headaches. You also avoid having to search for a quality technician as warranties take care of that.
It can be great for older homeowners or those new to owning a home to be able to pick up the phone and get repairs done.
However, brand new homes often come with warranties from the builders that ensure the quality of the home’s materials and workmanship.
While appliances aren’t covered in that kind of warranty, it might not be worth it to pay for a home warranty just for that. Add in that some credit cards offer warranties (that can be used in conjunction with manufacturing warranties) for new appliance purchases, you may find that a home warranty isn’t right for you.
If you do choose to get a home warranty, do you due diligence. Check the BBB rating for companies and carefully read their contracts for premiums and limitations.
Your home warranty will cover the replacement of a leaking toilet. But it won’t cover water damage which typically falls under the domain of homeowners insurance. Home insurance covers a wide range than a warranty. When disaster strikes in the form of fires, theft, or other perils, a homeowners insurance policy helps owners replace and repair their property. Depending on the company, some policies will have you covered only for perils outlined in the policy while others cover you for nearly every situation unless it is excluded inside the policy.
Unlike a home warranty, you don’t receive anything from insurance if your dishwasher or air conditioner were to suddenly quit.
And like warranties, restrictions exist and there may be a limit to how much you can receive from a claim.
There are still plenty of benefits to getting home insurance. In case someone is injured in your home, liability coverage is included with many insurance policies. Damages that are covered by your insurance policy are compensated with a check sent by the insurance company.
However, homeowners don’t receive any money towards a claim without having to pay a deductible that can range from hundreds of dollars to thousands depending on the policy.
Despite the costs, insurance is a great investment. If your home is lost in a fire, you won’t be on the hook for hundreds of thousands of dollars and you may be able to spend less on temporary housing.
So which do I need?
Home insurance and a home warranty can (and should) be complementary, covering different aspects of the home. Whether your home sustains structural damage or if your refrigerator shuts down, you are covered.
By combining a warranty and insurance, you are putting layers of protection around your home that you won’t likely regret.
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