Home Warranty vs. Home Insurance

You may be wondering what the difference is between a home warranty and home insurance if you own or plan to buy a property. After all, both protect your investment—and your wallet—in the event that something goes wrong. Home warranties and home insurance plans, on the other hand, provide different forms of protection. Knowing what each one covers can assist you in determining whether you require both.

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TAKEAWAYS IMPORTANT

• A home warranty covers household equipment and systems, such as the HVAC, plumbing, and electrical systems, at a reduced cost.
• Home insurance protects your home and belongings from significant disasters such as fires, windstorms, and theft. It also protects you from liability if someone gets hurt on your premises.
• Your lender may compel you to purchase home insurance if you have a mortgage. It is not necessary to get a home warranty.
• Consider purchasing both a house warranty and a home insurance policy for the most peace of mind.

What Is a Home Warranty and How Does It Work?

A home warranty is a service contract that helps cover the costs of repairs and replacements for eligible household equipment and systems. You get a flat rate on service calls in exchange for a monthly or annual fee.

If a covered appliance or system fails, your home warranty company dispatches a specialist to diagnose and repair the problem, and you just pay the service call charge. These plans, of course, have coverage limitations: A contract might pay up to $1,500 per year for each qualified equipment, with a claim limit of $15,000 per year.

If you get a home warranty as part of a real estate transaction, it normally kicks in as soon as you close on the house. If you purchase a warranty for a home you already own, however, you may have to wait 15 to 30 days for coverage to begin.

What Is Covered by a Home Warranty?

Appliances and systems in both new and pre-owned homes are covered by home warranties. The majority of house warranty businesses provide three different types of plans:

• Appliance Plans (e.g., washer/dryer, dishwasher, and refrigerator)
• System Plans (e.g., HVAC, plumbing, and electrical systems)
• Combination Plan (everything included in the appliance and system plans)

Most providers allow you to add coverage for specific items that aren't covered by the regular policies (for a charge). Pools, spas, septic systems, wells, lawn sprinkler systems, and additional appliances are also common "add-ons" (e.g., a second dishwasher or air conditioner).

How Much Does a Home Warranty Cost?

Home warranty costs are based on two fees:

• A monthly or annual fee. This is what you pay to access the discounted service calls. Depending on where you live and the plan you buy, you might pay anywhere from $350 to more than $1,100 per year.
• A service fee. This is the amount you pay each time you request repairs for a covered appliance or system. Most companies offer several service fee "levels," which might range from about $55 to $150 per service call. In general, the lower the service fee, the higher your monthly or annual fee will be, and vice versa.

What Is Homeowners Insurance?

Home insurance (aka homeowners insurance) is a type of property insurance that protects against losses and damages caused by covered perils. According to the Insurance Information Institute (III), a standard homeowners insurance policy includes four essential types of coverage: 

• Coverage for the structure of the home. This pays to repair or rebuild the house if it's damaged or destroyed by a covered peril. Most policies cover other structures on the property, too, such as garages, tool sheds, decks, and gazebos.
• Coverage for personal belongings. This covers your furniture, clothes, sports equipment, and other personal belongings if they are stolen or destroyed by a covered peril. If you have expensive items, you may need a special personal property endorsement or a floater to ensure you're adequately protected.
• Liability protection. Liability coverage protects against lawsuits for injuries and property damage that policyholders, their family members, and their pets cause to other people.
• Additional living expenses. This pays for hotels, meals, and other living expenses if your house is uninhabitable due to a covered peril.

What Does Homeowners Insurance Cover?

The most popular home insurance policy is the HO-3, which covers your home, belongings, and liability. According to the III, HO-3 policies provide broad coverage and protect against 16 disasters and perils: 

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Damage caused by aircraft
• Damage caused by vehicles
• Smoke
• Vandalism or malicious mischief
• Theft
• Volcanic eruption
• Falling object
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam from a plumbing, HVAC, or automatic fire-protective sprinkler system, or from a household appliance
• Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioner, or an automatic fire-protective system
• Freezing of a plumbing, HVAC, or automatic fire-protective sprinkler system, or of a household appliance
• Sudden and accidental damage from an artificially generated electrical current

Personal liability for injuries to others (those who do not live with you) and their property while on your property is also covered by homeowners insurance. Dog bites, house accidents, falling trees, inebriated guests, and wounded domestic employees are among the most common liability claims.

Floods (whether natural or created by humans) and earthquakes are not covered by standard home insurance policies. Adding flood or earthquake coverage to your policy, or purchasing a new insurance, may be a sensible option depending on where you live. Inquire with your insurance agent about if either is suggested in your area.

How much does it cost to insure a house?

According to a 2019 survey from the National Association of Insurance Commissioners, the average home insurance premium for owner-occupied homes is $1,211. (NAIC). You could spend more or less depending on a variety of circumstances, including:

• Where you live
• Your home's rebuilding costs
• The value of your personal belongings
• Your home's size, features, and condition
• The deductible and coverage limits you pick
• Your history of home insurance claims
• Your marital status and credit score

Dogs are another factor that can affect the cost of homeowner's insurance. An insurance provider may raise your premiums, omit dog liability coverage from your policy, or deny coverage altogether if you have a "dangerous" dog breed.

The following are the most frequent dog breeds that insurance companies consider to be dangerous:

• Akitas
• Malamutes from Alaska
• Chows
• Doberman pinschers are a breed of dog.
• Shepherds from Germany
• colossal danes
• Pit bulls are dogs that have been bred to fight
• Canarios are available for purchase.
• Rottweilers
• Siberian huskies are a breed of dog native to Siberia.
• Staffordshire terriers are a breed of dog that originated in the United Kingdom.
• Wolf crossbreeds

Final Thoughts

When a major household system or appliance fails, home warranties can help cover the costs. Home insurance, on the other hand, protects your house and valuables from theft and other risks, as well as providing personal liability coverage. A home insurance coverage may be required by your lender if you have a mortgage. Of course, even if it isn't needed, protecting your investment with a solid insurance coverage makes financial sense.

While house warranties are an optional supplementary layer of security, they can bring further piece of mind. They may be the best option if your appliances and systems have outlived their usual warranties, are in danger of breaking down, or would be excessively expensive to replace.

Read the fine print before purchasing a house warranty or a home insurance policy so you know exactly what it will—and will not—cover. Find an insurance that meets your needs and fits your budget if this one does not. That way, if something goes wrong, you won't be surprised.