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When you buy a home, you will likely hear that you need some form of home insurance. This is absolutely true, but when terms start flying — such as home warranty and home insurance — it can feel overwhelming as you try to figure out the distance between these policies and which one is right for you.
When it comes to home warranty vs. home insurance, there are a few key things to know. Being familiar with each of these will help you know exactly what is covered on your property and which option is the best for your needs.
In this article, we’ll break down everything you need to know about home warranties and home insurance when buying a home.
What is Home Insurance?
Home insurance or homeowners insurance is a way to cover your home against unexpected damage, often from natural disasters or other emergencies. Without help from an insurance company, the cost of repairs can decimate your savings account or even cause you to lose your home.
Home insurance is designed to protect your home against damage from:
- Fallen trees
- Wind or hail
- Theft or vandalism
Most policies stipulate that any part of your property is covered, such as sheds, pools, patios and decks, and other structures. However, the amount covered and the premiums can vary significantly from policy to policy — or even item to item. For example, premiums on theft and vandalism are often capped, so you won’t be repaid the full cost of your stolen or damaged items.
Because these changes can be subtle and detailed, it is vital to read your home insurance policy carefully before agreeing to anything.
What is a Home Warranty?
A home warranty, on the other hand, protects appliances and systems in your home as they break down due to normal wear and tear. A home warranty covers the cost of repairs or replacements of items such as:
- Water heater
- Stove or oven
- Washing machine
- Electrical systems
- Garage door system
- Garbage disposal
Additional coverage may include:
- Air conditioning units and systems
- Ice makers (often excluded from refrigerator coverage)
- Pool equipment
- Spa equipment
When you go to purchase a home warranty, make sure to read the fine print in your policy. Different policies cover a wide range of home systems, so double-check that your home warranty company plan covers all the appliances and systems in your home against damage or wear.
When do You Need a Home Warranty vs. Home Insurance?
There is no rule that says you can’t have both home warranties and home insurance. In fact, homeowners are encouraged to purchase both policies to ensure their plan covers damages in every part of their home.
One of the key differences between the two policies is that home insurance is designed to protect against unexpected disasters, while a home warranty only covers items and appliances listed explicitly in your contract.
That means that you may want to purchase a home warranty that has more extensive coverage, even if only for your peace of mind. However, you can also opt simply to cover your home’s essential systems. Just bear in mind that you will be responsible for repairing or replacing any appliances not listed on your warranty.
Home insurance, on the other hand, is designed to protect against unexpected emergencies. If your home is damaged by something unanticipated, you can file a claim with your insurance company. The company will then review whether the damage falls under the criteria of your coverage.
So how much does homeowners insurance cover? Premiums can vary widely, but in general, you can expect your insurance to cover between 50 and 70 percent of the cost of replacing or repairing damaged items in your home. In some cases — such as in the case of a house fire — this can save you tens of thousands of dollars.
Who Should Get a Home Warranty?
No one is required to buy a home warranty, but they can offer protection against repairs of big appliances and systems — which can be a soothing prospect for homeowners who don’t have a large savings.
Similarly, if you live in an old home, a home warranty may be a prudent investment. Warranties cover the systems and appliances stipulated in the contract regardless of their age. A home with older appliances that have had decades of wear and tear is likely to need repairs in the near future, while a newer home isn’t.
If you aren’t someone with a knack for home repairs, a home warranty may also be a good choice. People who have experience fixing things around the house — or have a contractor in their family — may forgo a warranty, since they can tackle most problems themselves.
Who Should Get Home Insurance?
Strictly speaking, everyone should get home insurance. While it is not legally required, most banks won’t grant you a mortgage if you don’t have the property covered.
Even if you think significant damage is unlikely to happen, home insurance is explicitly for unforeseen and unexpected events. It is a worthwhile investment that could potentially save your home and your emergency savings.
So What’s the Bottom Line?
Both home warranties and home insurance can save you thousands of dollars in the event of damage to your home. While neither is strictly required by law, you may face problems buying a home if you don’t have insurance. Many banks, for example, may not agree to a mortgage without it.
Ultimately, it makes sense to get a homeowners’ insurance policy. As of 2022, the average nationwide monthly cost of home insurance is $158, making it a minor expense in comparison to the thousands — or even tens of thousands — of dollars you could save in the event of an emergency.
Alternatively, choosing whether or not to get a home warranty is much more a matter of opinion. As we outlined above, it can depend on the age of your home, how many appliances you have to cover, and how large your emergency savings is. Knowing all these details is essential to making a solid choice for you and your property!