Homeowners insurance vs home appliance insurance

There has always been a debate among homeowners (both old and new) when it comes to homeowners insurance vs home appliance insurance. Many homeowners believe that they do not need both and that only one will suffice. While that sometimes might be the case, it is not always true. Homeowner’s insurance is usually mandatory but it does not cover everything. On the other hand, home warranties purchased from one of the most popular home warranty companies can cover just about everything inside a home. But they do present an additional cost. In this article, we are going to explain all about both forms of insurance and provide you with all the information you need to make the optimal choice.

The fundamentals

There are a lot of questions about homeowners insurance and home appliance insurance. But most of them can be answered by answering the following four questions:

  • What is homeowners insurance?
  • What is home appliance insurance?
  • Who should purchase homeowners insurance?
  • Who should purchase home appliance insurance?

Furthermore, there are other considerations as well. If you are looking to protect your home from water damage, for example, you might want to carefully analyze what each insurance covers. But to do so, you will first need to know what each insurance represents.

What is homeowners insurance?

Homeowner’s insurance, commonly referred to as simply home insurance is usually mandatory. This means that almost every single mortgage company will require you to have it before you are able to sign the contract. Without purchasing home insurance, you will not be allowed to get a loan, simple as that.

Homeowner’s insurance covers any interior and exterior damage to a home, as well as theft and loss of possessions. It comes in three basic coverage levels:

  • Replacement cost
  • Actual cash value
  • Extended replacement value

The policy rates are usually determined by the home’s past claim history, as well as the condition of the home itself and its neighborhood. Other than that, these policies can be further customized. Therefore, if you are looking to budget for home improvements and repairs, you will want to make sure that your policy is set up exactly the way you want it to. And you will want to choose the best coverage for your situation.

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Let’s take a look at your options.

Replacement cost

This coverage will cover the actual cash value of your home and items within, without any depreciation. That means that even if you need to rebuild your home from the ground up, you will get coverage for the home’s original value. When it comes to homeowners insurance vs home appliance insurance, the latter simply does not provide for any replacement costs.

Actual cash value

vintage items on a wall
If your home is full of vintage items, you might want to consider actual cash value coverage instead of replacement cost coverage.

The difference between replacement cost coverage and actual cash value coverage lies in depreciation. While the former does not consider depreciation, the latter does. With actual cash value coverage, you will be reimbursed for the current value of your home/items. It will not matter how much you paid for them initially, what matters is how much those items are currently worth.

Extended replacement value

This is the most comprehensive coverage. If you have extended replacement value, you will be given funds to repair or rebuild your home to its original state regardless of how much it costs to do so. Meaning that it can go over your policy limit. There’s a limit to additional costs, of course, and it is usually within the 20%-25% range.

The main benefit of this coverage is the fact that it is “inflation-proof“. Where all other coverages would either cover the home’s original cost or the home’s current cost, extended replacement value covers the home’s “future” cost. In a way, at least.

But there are a lot of other factors that may decide which coverage plan is best for you. For example, you may simply want the cheapest coverage plan if you are buying a brand-new home in a relatively safe area. But if you happen to live in an area that is prone to natural disasters, you will definitely want an extended replacement value coverage.

natural disasters
If you live in a disaster-prone area, consider purchasing extended replacement value coverage.

To better understand homeowners insurance vs home appliance insurance, we also need to look at the latter. Let’s do that now.

What is home appliance insurance?

Home appliance insurance (most commonly referred to as a home warranty), is basically a contract that provides homeowners with discounted repair/replacement services. Most of the time, it covers appliances that homeowners insurance does not, such as HVAC, furnace, electrical systems, and plumbing. Furthermore, a home warranty can be extended to cover small appliances such as refrigerators and dryers. It can even cover a swimming pool! The main benefit of a home warranty plan is protecting the homeowner from expensive repair costs. It can provide peace of mind and a buffer against unforeseen repair bills.

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Home warranties are ideal for people that do not want to bother with any repairs. When you purchase a home warranty, you will have access to dedicated professionals and the warranty will pay for most of the cost. There are some out-of-pocket expenses, such as service fees, but they are usually negligible in comparison to the total cost.

Homeowners can customize their home warranty, and it is very important that they do so. Also, they should note that a home warranty will not cover any items that have not been properly maintained. This usually means that you might want to add a few items to your spring home maintenance checklist. Furthermore, homeowners need to be very careful when selecting their home warranty company. There are many unscrupulous companies that use the “maintenance clause” to wiggle out of their responsibilities. Furthermore, homeowners need to be mindful of any exclusions and limits the warranty might have.

various tools
To get the most out of a home warranty, you need to be diligent with maintenance.

All in all, a home warranty is a great way to protect yourself from excessive repair bills but you need to be very careful when purchasing it.

Who should purchase homeowners insurance?

Basically, everyone who owns a home will want to purchase homeowners insurance, simple as that. If you happen to be renting, you will want to get renters insurance instead. While the homeowner’s insurance is not required by law, it is all but mandatory if you require a loan to purchase your home.

Homeowner’s insurance is ideal for people who want to ensure their financial security, as well as those who want to make their residence as safe as possible. However, it is an additional expense and it is not suited for everyone. If you can’t afford to get homeowner’s insurance, it is not for you. Furthermore, if you only require protection from the standard “wear and tear”, you may be better served with home appliance insurance instead. But the main thing about homeowners insurance vs home appliance insurance is the fact that you may want to have both.

Who should purchase home appliance insurance?

People who have old appliances or an old HVAC system usually get the most benefit from home warranties. A home warranty is also ideal for people that do not want to find service technicians on their own. Or for people that require coverage for specific appliances (e.g. extended kitchen appliance warranty). Lastly, since a home warranty protects from large expenses, it is also ideal for homeowners that do not have a savings fund.

a HVAC system
Home appliance insurance is ideal for homes with older HVAC systems.

A home warranty is usually not for homeowners that have mostly new appliances, as they are usually covered by manufacturer’s warranties. Nor for people that do not wish to risk restrictions and exclusions present in many home warranties. And if you are a homeowner that prefers to work with your own service professionals, a home warranty might not be for you, either.

Homeowners insurance vs home appliance insurance – The bottom line

Both homeowners insurance and home appliance insurance are optional. Unless, of course, you have to take a loan. Homeowners insurance will protect you against disasters and perils while a home warranty will help you cover the appliance repair costs. In other words, you cannot get full coverage without both. But you always need to read the fine print. Clauses and exclusions are present in both homeowners insurance and home warranty plans. Homeowners insurance vs home appliance insurance is all about what you want to protect. If you want to protect your home (and your wallet) from disasters only, you get homeowners insurance. If you want to minimize the cost of appliance repairs, you get home appliance insurance. But always read the fine print.

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For more information on home warranties, and the best home warranty companies, browse the Consumer Opinion Guide. We also host a knowledge database of articles that are useful to any homeowner!

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