One of the largest investments that you’ll ever make is the purchase of a home. New buyers find the terms used in the purchase of a home confusing, which is understandable. Knowing these terms and what they mean, will help you better understand the process and all that it entails. Two terms that buyers find confusing is the difference between homeowners insurance and a home warranty. Many see them as being the same but they aren’t.
While both cover losses that you may have in your home, homeowners insurance and home warranty, serve different purposes. The biggest difference between homeowners insurance and home warranty comes down to what they both cover.
What is Homeowners Insurance?
Homeowners insurance is a policy that protects your home from natural disasters, such as fallen trees, lightning strikes and fires. It is regulated by the state in which you reside and is required by lenders to insure the home on which they are carrying the mortgage. If you own your home outright, you are not required to carry homeowners insurance but even though the home is paid for, you need to protect your assets. Most policies don’t cover floods and areas that are prone to flooding require that homeowners add flood coverage to their policies.
What does Homeowners Insurance Cover?
Homeowner insurance covers your home from theft, vandalism, acts of God, accidents by third parties, fire, hail, wind, fallen trees, and other natural disasters or any additional threats you add to your policy. This can include extended coverage for the contents of your home, including guns, jewelry, and flood insurance riders. Homeowners insurance covers the structure of your home, its contents and provides liability insurance that protects friends, neighbors or others who may be injured on your property.
What Homeowners Insurance doesn’t Cover?
It doesn’t cover your homes systems. This includes your appliances, heating and air system, swimming pool filtration system, hot water heater, private water system, unless they are damaged due to a natural disaster. Then they will be covered by your homeowner’s policy. This is where the difference between a homeowners insurance and home warranty becomes clearer.
Homeowners insurance will cover medical expenses for anyone injured on your property but it does not cover you, or your immediate family members who may have an accident around the home. Standard homeowners insurance does not cover flooding in a home unless it is caused from a burst pipe. If flooding occurs in your area due to natural causes, you should add flood insurance to your policy. Some lenders will require that you carry flood insurance if you’re in a designated flood zone.
What is a Home Warranty?
First, it is not required by your lender and is often offered by buyers to sweeten the deal when selling their home. A home warranty is a service contract between you and a particular vendor that covers systems in your home not covered by homeowners insurance unless catastrophe strikes. Well, nine times out of ten a refrigerator or heating and air system aren’t going to wait on a natural disaster to go offline and if you aren’t prepared, the expense of a repair or replacement can eat into your budget.
What can a Home Warranty do for You?
A home warranty will connect you with a service company who will send a technician to repair a broken appliance, heating and air system or other covered item. If it cannot be repaired and needs to be replaced the service technician will work with you to see that it happens. Even though you pay an annual fee that is usually contracted for a 12-month period for a home warranty, there can be a service fee when you call a technician to come to your home.
Base plans generally start around $400 per year, depending on the contractor, but the price of a home warranty will go up from the base price depending on what you want to cover. Adding a swimming pool, outdoor kitchen, deep freeze, hot tub or other expensive to repair items will add to the cost of a home warranty. The beauty of a home warranty is that if a system fails completely you will be able to have it replaced for the cost of a service call if it is covered under your agreement.
Often offered as an incentive to buyers, some sellers will add a home warranty to sweeten a deal. Especially if a particular, system is questionable in its operation. It may be cheaper for the seller to purchase a home warranty for the buyer than to renegotiate a home price due to a system found problematic in a home inspection.
Do you get it Now?
Home insurance is a requirement when you purchase a home through a lender a home warranty is not. You will be required to purchase a policy before you close on the home. A home warranty is optional and covers the cost of repairs or replacement of appliances and home systems listed in the agreement with the home warranty vendor.
2 Point Highlight
The biggest difference between homeowners insurance and home warranty comes down to what they both cover.
Home insurance is a requirement when you purchase a home through a lender a home warranty is not.
