Now that you're a homeowner, you need to be prepared for home maintenance and life's unexpected events. Let's say that your water heater stops working and you wonder, "Do I call my insurance company or my home warranty provider?" as steam pours out of the basement. Wait, aren't they essentially the same thing?
No, not at all. Although the terms "home warranty" and "home insurance" may sound similar, they are quite distinct. Knowing the difference could help you avoid a major headache later on and save thousands of dollars.
Home Insurance: What Is It?
Your comprehensive defense against catastrophes and liability nightmares is home insurance. When life throws you a major curveball, like a fire, a hurricane, hail damage, or someone stumbling and breaking their ankle on your front steps, it takes effect.
Most mortgage lenders won't even let you close without home insurance because your house is their collateral. The coverage is surprisingly broad. We're talking everything from a baseball smashing through your window to losing your entire home in a fire. Some policies even cover your stuff inside the house and outdoor structures like sheds.
Here's the catch: home insurance is getting ridiculously expensive, especially in states like California and Florida where natural disasters have exploded. Premiums have jumped 24% nationwide over just the last three years. For a $300,000 house, you're looking at around $2,532 annually, according to Insurify.
What Is a Home Warranty?
A home warranty is way more limited. Think of it as a maintenance plan for your home's major systems and appliances—your HVAC, water heater, fridge, oven, garage door opener, that sort of thing. It's basically a service contract that lasts about a year.
Unlike home insurance, nobody's forcing you to buy a home warranty. It's completely optional. The coverage caps are also much lower—often just a few thousand bucks per year. Anything beyond that? You're digging into your own wallet. Most home warranties run between $350 and $900 annually, according to ConsumerAffairs. That's way less than insurance, but remember—you're getting way less protection.
What Does Each One Cover?
What Home Insurance Guards Against:
- Significant structure damage from lightning strikes, hailstorms, hurricanes, and fires
- Your personal property in the event that it is lost or stolen
- Legal responsibility in the event that someone is injured on your property; hotel costs and living expenses in the event that your house is rendered uninhabitable
One important disclaimer is that earthquakes and floods are typically not covered. You need separate policies for those disasters.
Home Warranty Covers:
- Home systems—plumbing, electrical, heating and cooling
- Major appliances—refrigerators, ovens, dishwashers
- Add-ons like pool equipment if you pay extra
How Do You Actually File a Claim?
Here's where things get really different.
With Home Insurance: You take photos of the damage, file a claim with your insurance company, and cross your fingers. Once approved, they'll pay out minus your deductible—usually $1,000 to $2,000. The upside? You can usually pick whoever you want to do the repairs.
When you call your home warranty provider, one of their authorized personnel is dispatched. Every time you visit, you will have to pay a service fee, which is usually between $75 and $125. You are essentially trapped with anyone they send, and they will only pay for expenses up to the boundaries of your contract.
Home Warranties and Home Insurance are not the Same
Home Insurance helps protect your home and you from major events. Whereas on the other hand a home warranty eases the daily inconveniences of being a homeowner.
Home insurance? Non-negotiable. You need it. A home warranty? That's your call. It might make sense if your appliances are ancient or you hate dealing with repair bills. But it's not going to save you when a tree crashes through your roof or your kitchen catches fire.
If you're in the market for a new home or considering refinancing your current home - give us a call today!