Home warranty vs home insurance – what’s the difference?
Home warranty vs home insurance is an ongoing debate among many people. However, the two policies are quite different. One covers your home appliances; the other covers your home in case of damages and loss of assets. That being said, the best home warranty service may provide you with additional insurance against costly repairs. Home insurance does nothing against wear and tear, and you might want to consider purchasing both policies for maximum protection. This article will explain exactly what home warranty and home insurance are, their differences, and what your best options might be.
What is a home warranty?
A home warranty is a contract you sign with a home warranty company that protects your appliances from pricey repairs. It is not to be confused with the manufacturer’s warranty which only lasts for a set period of time. A home warranty can be placed on any home appliance, including expensive HVAC and septic systems. In essence, a home warranty is a financial protection from a third-party provider for homeowners that do not want to deal with unexpected appliance issues on their own. There are three primary aspects you might want to consider when deciding whether to purchase a home warranty:
- Limitations and exclusions
A home warranty usually comes in one-year contracts, although longer warranties are possible. With so many home warranty companies on the market, homeowners have numerous choices when it comes to protecting their appliances. Furthermore, it is possible to renew a home warranty after it expires, allowing for a continuum of protection. However, to get the most out of your home warranty, you will first want to know what is covered. And, more importantly, what is not.
Home warranty coverage
A home warranty contract covers repairs and replacements on various home systems and appliances. These include:
- Plumbing systems
- Electrical systems
- Cooling and heating systems
- Large home appliances (washer, dryer, oven, garbage disposal, etc.)
In essence, you can probably get a home warranty on even the small appliances in your home. The coverage depends on the particular home warranty company, and there might be limitations and exceptions. The way that the home warranty protects homeowners from repair costs is rather simple. If an appliance that is under the home warranty contract breaks down, the company will send someone to assess whether it needs to be repaired or replaced. The company will then pay for the repair/replacement. However, there is a service fee that homeowners will need to pay whenever the company sends someone to their home. These service fees are always included in the contract and vary between companies. One company might decide on low service fees but higher premiums, while another might do the opposite.
A home warranty will not cover any damage to your home that was caused by appliance/system malfunction, however. Only the appliance itself is covered. Therefore, if you want to protect your home from water damage, for example, you might need an additional insurance policy aside from a home warranty. That being said, the appliance itself will still be covered. Considering that the repairs for an HVAC system can cost thousands of dollars, having someone else pay for them is quite a benefit.
Basically, a home warranty protects your appliances from normal wear and tear.
Benefits of home warranty plans
The primary benefit of a home warranty plan is peace of mind. This is quite the same as any other form of insurance, as you will know that no matter what happens to your appliances, they will be covered. This allows you to plan your budget accordingly without having to worry about unexpected expensive repairs. However, the benefits of home warranty plans extend even further, as your home will increase in value, and it will be much easier to sell. When it comes to home warranty vs home insurance, this is one thing that they have in common. Both of them increase the value of the property. A home warranty benefits older homes the most, as newer homes are a lot less likely to experience appliance malfunction/breakdown.
That being said, it is usually a smart idea to purchase a home warranty, even on a new home. At the very least, you might want to contact the company to do an initial assessment of any appliances that do not have a manufacturer’s warranty in place. That way, you will know whether any of your appliances are working as they should. The assessment involves visual and mechanical tests, which will show the state of your appliances. It will also point out any pre-existing conditions that you might want to be aware of. Speaking of which, these conditions are usually significant limitations in almost all home warranty contracts.
Limitations and exclusions
Almost every single guide on home warranties will tell you that you need to read the contract carefully, especially the “fine print”. This is because home warranties come with a plethora of limitations and exclusions. First and foremost, there are maintenance requirements. Every single home warranty contract will require you to conduct “proper maintenance”. This usually simply means that you may need to add a few items to your spring home maintenance checklist, but it can be much more complicated than that. This is because the term “proper maintenance” differs from one company to another. It is vitally important that you understand what the term means to your home warranty provider. Otherwise, you may think that your appliance is covered, only to realize that you haven’t been doing your part.
Every company has its own set of limitations and exclusions. You need to make sure that you fully understand all of them before you sign the contract. Never go with “It will all be alright, don’t worry about it” for an answer; always demand explanations until you are satisfied. A reputable home warranty company will have no problems providing you with any and all explanations you may require.
The second important consideration of home warranties is pre-existing conditions. These conditions include any mechanical or visual factors that may prevent the appliance from working correctly at the time of the testing. Most home warranty companies will not cover pre-existing conditions, but there are a few exceptions. However, the issue with pre-existing conditions is that you may sign a home warranty contract without inspecting your home first. If you do so, your home warranty company might deny you coverage on account of these pre-existing conditions. The best thing you can do is to make sure that the company (or their designated partner) performs a home inspection prior to signing the contract. That way, even if they do not spot any pre-existing conditions (and there are some), your appliances will be covered as if they did not have them in the first place.
Overall, there are many limitations and exclusions that a home warranty company can “pull” on you. Not to mention that you might be dealing with a company that is out to scam you. The best way to avoid home warranty scams is to only deal with reputable companies. That way, you only have to worry about what is written in the contract. However, even if you are dealing with a reputable company, you still need to be careful. Pre-existing conditions have many variables, and it is important to understand them fully. Again, before signing anything, make sure that you fully understand what you are dealing with.
What is home insurance?
Unlike a home warranty, home insurance covers your entire home in case of accidents, disasters, theft, and similar. The standard home insurance policy covers the structure of your home and your personal belongings. One of the more important considerations when thinking about home warranty vs home insurance is that the latter may even cover additional living expenses. Furthermore, home insurance will also cover injuries sustained by someone else on your property. Due to this reason, home insurance (also referred to as homeowner’s insurance) is often mandatory before you can get a mortgage. While you are not required by law to have home insurance, it is usually in your best interest to have one.
Home insurance usually comes in three types:
- Comprehensive insurance
- Broad insurance
- Basic insurance
But regardless of the type, home insurance will not cover any appliances in your home unless they were directly impacted by a disaster or theft. For example, if the damage to your appliance was caused by you not cleaning and maintaining kitchen appliances properly, home insurance will not provide any coverage. While the home insurance policy covers many things, there are significant gaps in its coverage. Furthermore, the insurance type determines the coverage level.
The highest level of home insurance money can buy, comprehensive insurance is the most common type. This policy, often referred to as “all risk” coverage, will cover your entire home and all your belongings from any loss whatsoever. There are a few exclusions, of course, and they vary from one company to another. Even if you get a comprehensive home insurance policy, it is always a good idea to thoroughly read and understand the contract prior to signing it. One of the most common mistakes that home buyers make is to purchase a home insurance policy and not even read the contract. Needless to say, this can lead to significant complications down the proverbial road.
The second-highest level of home insurance provides coverage for larger items (such as the building itself) and provides only a basic level of coverage on any items that are specified within the policy. If you are planning on getting broad home insurance, it is in your best interest to carefully analyze what exactly is covered, what is not, and what are the coverage conditions. The reason why some people opt for broad insurance plans is due to lower premiums, of course, but you need to ensure that you are still getting an adequate level of protection.
Under basic insurance, only certain items are covered. The items vary from one policy to another, and there is a lot of room for customization. These plans usually have the lowest premiums, but they offer the least coverage. You may want to consider basic insurance on your seasonal cottage, for example, but not for your primary residence. Basically, if you don’t have much to lose, consider basic insurance. Otherwise, you might want to go with comprehensive or, at the very least, broad insurance.
Home warranty vs home insurance
Even though both home warranty and home insurance offer coverage for unexpected events, they are quite different. The main difference lies in the coverage itself. A home warranty will protect your appliances and home systems from regular wear and tear, while home insurance will cover your home in cases of structural damage and loss of personal property from disasters and emergencies (fire, theft, earthquake, etc.). Also, a home warranty is never required, while home insurance is usually mandatory when you want to apply for a mortgage.
Overall, the two complement one another. Your home can only have maximum protection by having both a home warranty and home insurance. There are many reasons why you need a home warranty plan, and there are also many reasons why you need a home insurance policy. Ultimately, you do not want to compare home warranty vs home insurance; you want to have both.
For more information on home warranties, the best home warranty companies, and any other relevant information, Consumer Opinion Guide is there to help you out! Our expert articles have all the information you might need to make the best choice considering your home warranty purchase!