Home Warranty Versus Home Insurance

Purchasing a home or condo entails a large amount of paperwork and countless details, and sorting through everything takes a significant amount of time and effort on the part of the owner. Understanding the difference between home insurance and home warranties is critical when deciding how to protect a home and the personal items contained within it.

Home insurance and home warranties both "cover" aspects of the home, and there is some overlap between the two products, making them easily confused.

However, warranties and insurance provide different types of protection to homeowners, and those protections will only cover certain types of damages in some cases. As a result, understanding the benefits and limitations of each product, as well as whether a home warranty is worth it, is critical to making an informed decision.

We'll walk homeowners through the intricacies of home insurance and home warranties, comparing them along the way, so they can make the best decision for their assets.

Home Insurance vs Home warranty: what’s the difference?

Home insurance is used to protect a home and its contents from a list of perils specified in an insurance policy, such as natural disasters and theft.

A home warranty, also known as a housing warranty, is used to protect home appliances and home systems when they break down, so that the appliance or system can be repaired or replaced using the home warranty rather than the owner footing the bill.

Because each insurance policy and home warranty differs from one another, these definitions may not always be applicable. Before purchasing insurance or a warranty, it is always a good idea to read the fine print.

In the table below, we will compare home insurance vs home warranty and break down each general aspect of home insurance and home warranties.

As the table above illustrates, there are numerous differences and similarities between home insurance and home warranties. We'll go over each section in more detail below so homeowners know what to look for when looking for insurers and home warranty companies.

What does it cover?

Home insurance typically covers the main dwelling structure, personal belongings, and personal liability, which comes into play if the policyholder is involved in a legal dispute. Some policies may also cover home appliances and systems against perils covered by the policy, but home insurance generally does not cover these assets against wear and tear.

Home warranties cover home appliances in the event of a malfunction or general wear and tear. So, if an appliance, such as an oven, or a home system, such as a heater, wears out and stops working, the home warranty will pay to repair or replace it, whereas home insurance will not. Some home warranties can be extended to cover external structures such as swimming pools.

What does it cost?

The cost of both home insurance and home warranties varies greatly depending on the product and the company providing it. The higher the coverage limit and the more comprehensive the coverage, the more expensive the product for the owner.

How does one submit a claim?

Submitting a claim for both home insurance and home warranties is typically done over the phone. Furthermore, many companies now provide an online service for people to file claims through the company website. In order to be eligible for coverage, many home warranties require people to file a claim within a certain timeframe, usually 24 hours.

Does the lender require it?

Most mortgage lenders will require the homeowner to obtain home insurance before the loan can be approved. Lenders do not usually require home warranties.

Are there coverage limits?

Coverage limits apply to both home insurance policies and home warranties, and the limits of each coverage should be clearly stated when signing up for a policy or warranty. Coverage limits can usually be increased for a fee in both warranties and policies.

Is there a deductible?

Home insurance and warranties both have deductibles that must be paid before the coverage kicks in and pays the remainder. Deductibles in home warranties are typically much lower than deductibles in home insurance policies.

How can I make the cost of my coverage lower?

With both home insurance and home warranties, there are several ways to reduce the cost of coverage. Typically, companies will offer multiple tiers of insurance or warranties from which homeowners can select the amount of coverage that is appropriate for them.

Discounts for things like online billing and a good credit history are frequently offered by home insurers and warranty companies, and qualifying for these discounts helps to significantly reduce the cost of a warranty or policy. Check with the company to see if any discounts are available.

Increasing deductibles is another way to reduce the cost of insurance. In general, the greater the deductible, the lower the cost of coverage.