As homeowners, we want to make sure that we are properly insured in the event of something happening to our home. To do so, we need to be informed about different policies that we can obtain to protect our home and its assets, and how they work to do so. One major question that comes up with this topic is the difference between homeowner’s insurance and a home warranty. There are specific, important differences to understand, and in this article, we will define each policy and tell you what they cover.
What is homeowner’s insurance?
Homeowner’s insurance is a comprehensive way to protect your home in the case of outstanding events such as floods, fires, theft, and natural disasters. In order to purchase a home with a bank loan, homeowner’s insurance is usually required. The policy is renewed annually, and it offers a deductible, which is what you will pay if and when a claim is made. After paying the deductible, the policy will cover additional costs that you incur. A deductible can lower your yearly premium, depending on the policy at hand.
What is a home warranty?
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A home warranty is a service contract. It takes into account your home’s systems and appliances and then provides for replacement or repairs. Examples of what a home warranty covers include HVAC systems, electric, plumbing, washer/dryer issues, kitchen appliances, and more depending on the contract that you enter into. Additionally, larger features of the home can be covered, such as a pool. These assets may fail due to wear-and-tear or the natural aging process that all things go through. Typically, a home warranty has a contract term of 12 months, and you can choose then to renew the contract or create another one depending on your situation.
Essential Differences between the two…
Homeowner’s insurance tends to be more expansive in how it covers damage from external events like natural disasters and burglary. It is blanket coverage, and often required. Home warranties, by contrast, are more specifically geared towards appliances and systems within the home, and handling repairs and replacements, even due to wear and tear.
Which should I get?
Home insurance is mandatory, so you don’t really have a choice there. The bank almost always requires it, and it is a solid investment because, unfortunately, accidents do happen. Home warranties are best for people who own appliances and systems that are integral to their home (so, almost everyone). The choice to buy a home warranty is an especially good one, particularly if you have children, live in an area that is prone to extreme weather, or have purchased an older home with systems that are at risk for wear and tear. The decision rests with what you, as a homeowner, find to be risk factors. It is always better to be overprepared than underprepared, and in assessing risk, you should keep that in mind.
Homeowner’s insurance and home warranties are two very important protections, but all-too-often, they are conflated with one another. Mixing up the two is common, yet problematic, because in doing so you may be caught unawares by the fact that one is mandatory and the other isn’t. Homeowner’s insurance may only cover external damage, where a home warranty might cover the replacement of your dying air conditioner. It’s important to be aware of coverage options so that you can take full advantage of them. In deciding whether or not to purchase a home warranty, assess the risk that you may incur regarding your home’s geographical location, as well as your living situation. If you’re considering purchasing a home, offers insurance advisors who can help match you with the best policy and provider to keep your bases covered.