According to the National Association of Realtors, 5.15 million homes were sold at a median price of $258,100 in September 2018. Millions of individuals made one of the largest investments they’ll make in a lifetime in the span of a single month.
Are you one of them?
Whether you’re a first-time homebuyer or you currently own a home, it’s important to know the difference between home warranty vs home insurance. Doing so will help you make the best decisions for protecting your investment.
What’s the Difference Between a Home Warranty vs Home Insurance
From burglaries to broken appliances to Mother Nature’s wrath, home warranties and insurance cover a lot when used together. However, apart they have their limitations.
Below, we break down each coverage option so you know exactly what you get, as well as what’s required, when buying a house.
What Is Home Insurance?
Homebuyers are almost always obligated to purchase home insurance by their mortgage lender. It protects both the lender and the homebuyer should theft, fire, or some form of natural disaster cause exorbitant damage to the home.
Home insurance is an annual policy that homeowners must renew on a yearly basis. The cost for it ranges drastically from policy-to-policy, though you can expect the fee to fall between the range of $300 to $1000 per year.
Like most forms of insurance, it comes with a deductible the policyholder must pay before coverage kicks in. This means if something happens, you will have to pay out of pocket up to your deductible amount.
This, of course, is assuming your claim has been approved. In general, home insurance covers incidences like:
- Liability Claims Should Personal Injury Cases Occur on the Property
- Natural Disasters
However, what is covered and to what extent depends on the policy you purchase.
Home Insurance Shopping Tips
If you’re going to invest in home insurance, you want to make sure it’s a useful one. Consider carefully what risks are most likely to occur based on where your home is located and how it is built, then choose accordingly.
It’s important to note that most home insurance policies do not cover flooding. This is often a separate policy you must purchase, especially if you live in a flood risk area.
What Is a Home Warranty?
A home warranty is an optional form of coverage you can purchase when buying a house. However, just because it’s optional doesn’t mean you shouldn’t seriously consider it.
While home insurance covers large-scale disasters and acts of God that impact your home, a warranty covers the more common issues. This includes repair and replacement of essential appliances, such as:
- HVAC Systems
- Electrical Components
- Garbage Disposals
- And More
The level of coverage varies depending on your policy, along with how much you will pay out of pocket if something needs repairing or replacing.
Wait, You Have to Pay for Services Even with a Warranty?
Yes, but you don’t have to pay as much. Warranties significantly cut your costs when something goes wrong with covered appliances. Typically, you pay a yearly fee along with a moderate service charge if you ever need to use its coverage.
Whether this option is worthwhile depends on the circumstances and how much you’re willing to pay for peace of mind. A home warranty can save you substantial money if you find yourself with a costly electrical or home appliance issue that it covers.
However, you have to weigh the pros and cons. Home warranties, like insurance, have their share of limitations. Read the policy you’re considering carefully to ensure it covers the most likely or common issues your home may experience.
A new home is less likely to have as many unexpected problems as an older home, in which case it might be cheaper to simply cover any repairs that may arise on your own. But if your home is older and your budget is tight, a home warranty could provide you with peace of mind and protection against expensive home repairs.
What Do I Need to Protect My Home?
Now that you know the difference between home warranties and home insurance, you need to consider your options.
Home insurance is a given, as it’s almost always required when taking out a mortgage on a home. However, you need to consider carefully what policy you choose.
Since you are already purchasing it, you want to make sure your home insurance policy is worthwhile. Protect your savings by aiming for a low deductible and comprehensive coverage that protects you in events that could plausibly happen.
Should I Couple Great Home Insurance with a Home Warranty?
The next question is whether or not you plan to couple it with a home warranty. Even with great home insurance, you are still going to have gaps in your coverage. You can choose to fill some of those gaps with a home warranty.
Home warranties often start at around $400 per year. It’s a good investment if:
- Your home appliances are old but well-maintained
- You have expensive appliances within your home
However, keep in mind most policies will only cover you if the issue requiring a repair or replacement is due to normal wear and tear or old age. If an evaluation the technician or professional claims the issue is caused by human error or negligence, you will likely not receive coverage.
Yet these warranties can be lifesavers in costly and unexpected home repair, such as an air conditioning unit dying and needing a replacement.
Get More Insight into Homebuying and Ownership
If we’re just scratching the surface for you by sorting out the differences between home warranty vs home insurance, then consider exploring our free online resource. We have several articles covering advice for homeowners or potential homebuyers.
Need more information? What about one-on-one consulting? We can help with that, too.
With a combined experience of more than 4 decades in the real estate industry, we help home buyers and sellers make the best decisions. Contact us to inquire about a consultation.