Home Warranty vs. Home Insurance

Buying a home is a huge decision — and it’s one of the biggest financial investments you’ll ever make. Since you’re investing your savings and hard-earned cash, it’s important to protect your new asset. That’s why homeowners insurance and home warranties exist. These two policies allow homeowners to protect their homes and enjoy peace of mind. But what’s the difference between a home warranty vs. home insurance?

While the two policies sound alike, they protect your home — and your money — in different ways. Here’s what you need to know in order to understand the difference.

Home Warranties Cover Appliances and Systems

A home warranty is a warranty that protects your home’s systems and appliances. This type of peace-of-mind plan doesn’t protect every aspect of your home. But it does cover many things that are most likely to need to be repaired or replaced at some point. For instance, a home warranty protects major appliances like fridges and dryers. It also protects home systems like heating and air conditioning systems.

If one of the appliances or systems in your home breaks down, then your home warranty helps you cover the cost of repair or replacement. For example, if your refrigerator stops working, your home warranty covers the cost of a repair visit. And, if you end up needing a new fridge, it can help offset the cost.

Typically, a home warranty lasts for one year. The warranty can then be renewed annually. You can expect to pay an annual coverage fee, which is like an insurance premium. Additionally, there’s often a relatively small fee for a technician visit.

Home Insurance Covers Disasters and Losses

Homeowners insurance is a necessity — and it’s often required by mortgage companies or lenders. As a result, many homeowners carry home insurance from the moment they purchase their home and every year after that. Unlike a home warranty, homeowners insurance also covers both the interior and exterior of your home.

An insurance policy protects you, your home, and your property from any devastation or loss that’s caused by specific problems — fire, theft, heavy storms, and other disasters that may strike. Some home insurance policies also protect against vandalism and accidents. For example, if a burglary occurs and your personal possessions like jewelry, TVs, or computers go missing, homeowners insurance protects you, replacing these items or compensating you for their value. Similarly, if a fire breaks out, your homeowners insurance will help you recover.

Home insurance does require an annual – or monthly – premium. The cost depends on several factors like your home’s value, your neighborhood, and your deductible.

Home Warranty vs. Home Insurance

Ultimately, home warranties and home insurance are very different. While insurance protects against accidents and disasters, a warranty protects against wear, tear, and regular use. As a result, it isn’t a matter of home warranty vs. home insurance, but rather home warranty and home insurance. When it comes down to it, you may benefit from having both types of protection.

For example, if a pipe begins to leak, then having both a warranty and insurance could be a huge help. Your home warranty would pay to repair the pipe itself – but if the leak has caused water damage, it wouldn’t cover that. A homeowner’s insurance policy, however, would cover the water damage, giving you total coverage.

Do Your Research Before Choosing

Having a home warranty could cut your out-of-pocket costs and help you save rather than spend. So, for just a small annual fee, it can offer incredibly valuable peace of mind. However, it may not be necessary for all homeowners.

While many homeowners are required to carry home insurance, home warranties are optional. So, you’ll want to consider several factors before purchasing one. How old are your home’s systems and appliances? Are you prepared to cover expensive repairs that pop up unexpectedly? If want to learn more, compare top home warranties.