Home Warranty vs. Home Insurance: What’s the Difference?

If you’re homeowner then you likely know about home insurance. One of the most important documents you needed to have for closing was a home insurance binder. What you may not have heard about, however, is a home warranty. We’ll look at both — home warranty vs home insurance — so you can fully understand the differences.

The Basics of Homeowner’s Insurance

As they say in the commercial, “should disaster strike” your homeowners insurance policy covers your property and everything on it. This means all structures are covered, including a detached garage, tool shed, barn, etc. All possessions including electronics, appliances, furniture, clothes, and collectables are also covered.

If you’re unable to stay in your home as a result of damage, your home insurance will pay for a hotel until repairs are completed. Should someone get hurt on your property, homeowners includes personal liability insurance to cover both medical costs and legal costs in the event they decide to sue.

Choose Your Home Insurance Coverage

Homeowners can choose between “actual cash value” or “replacement cost” coverage. The former pays out what your property and possessions are worth minus any depreciation. While the latter, which is more expensive, pays the full cost of replacement.

You can also get extended coverage — usually 20 to 30 percent on top of your original policy — to cover any increases in the cost of materials and labor. Depending on where you live, you may be required to purchase additional flood, fire, or earthquake insurance.

Home Warranty vs Home Insurance 101: While home insurance is a requirement, a home warranty is not.

A home warranty policy protects you from unexpected costs that may arise after your closing. Depending on the particular policy, your home warranty may cover electrical, plumbing, heating, cooling, washer, dryer, and any kitchen appliances that came with house if they malfunction or stop working entirely.

Warning, though — your home warranty won’t fix everything. Faucet repairs, outdoor sprinkler systems, or spas are generally not covered. Some policies don’t cover refrigerators, washers, dryers, or garage door openers., while another policy may pay to bring electrical or other systems up to code. You may be able to add specific times to your policy but it will cost you more.

American Home Shield was the first company to offer a home warranty policy back in 1971. Today, there are hundreds of companies providing this unique product and service. Generally home warranty policies cost anywhere from $300 to $500 annually. Ask your real estate agent for a recommendation and how the costs may vary for a home warranty vs home insurance.

What Happens When Something Breaks?

The first thing you’ll do is call the home warranty company and identify the problem. They will then connect you with a local contractor who will make the repairs. Depending on your particular policy, if an appliance can’t be fixed a replacement will be provided and installed. You’ll have to pay a small service call fee — generally under $100. Labor and materials will be paid by the warranty company.

Don’t Be Denied

Though there are several differences when you’re looking at home warranty vs home insurance, home warranty companies do sometime deny claims like insurance companies. Reason include improper maintenance, code violation, improper installation, extreme wear-and-tear, or pre-existing conditions identified in your home inspection. In the event you’re denied, reach out to your real estate agent to see if they’ll intervene on your behalf.

While it’s best to purchase a warranty before moving into your new home, you can purchase one at any time. Warranty companies don’t generally make a distinction between new and older homes. If you’re buying a brand new home, a home warranty policy is probably for you. For anyone buying an older home, a home warranty may be the assurance you need.