Home Warranty Vs Home Insurance Explained

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Owning your own home is one of the largest financial decisions most people will make in their lives. Two of the most common ways to protect your home and your wallet is to understand the differences between comprehensive home warranty plans and home insurance.

What is Home Insurance?

Homeowners insurance will cover costs in the event your home or personal belongings are damaged or destroyed. It also offers liability insurance, should a guest sustain an injury in your home.

Policies have several options relating to what you are specifically covering, but first, you need to understand the various actual cash value and replacement cost policy types

• Actual cash value - typically used for belongings, this pays you for the cost to repair or replace damaged property, minus depreciation.
• Functional replacement cost value - pays for repair materials that are comparable but less expensive.
• Replacement cost value - pays for repair materials of similar kind and quality, but the payment will not exceed your coverage limits.
• Extended replacement cost value - pays out more than the face value of your coverage, up to a specified limit.
• Guaranteed replacement cost value - pays the full cost to repair or replace your home after a covered loss, regardless of policy limits.

What is a Home Warranty?

This is a service contract that covers the costs to repair or replace specific major systems and appliances in your home.

You simply contact your warranty provider and file a claim when a system or appliance needs to be serviced. The company will then connect you with a trusted service provider to assess the problem and repair or replace it as needed. The entire process is typically between a few hours and a few days.

Otherwise, these repairs could cost you hundreds or even thousands of dollars out of pocket every year.

What is Covered Under Home Insurance?

You can claim for the repair or rebuild of your home after events like fire, flood, smoke, theft, vandalism, falling trees, lightning, wind, or hail. Plans also include coverage of medical and/or legal costs due to injury of visitors.

Policies can also cover extensions to your home such as garages, sheds, barns, outdoor grills or fireplaces, and fences. Additions like a swimming pool or hot tubs can be covered at an additional cost.

You may also be covered while repairs are being made for things like alternative accommodation or lost rent if the property is a rental investment.

What is Covered Under a Home Warranty?

There are three types of cover:

• Systems plans - covers major home systems like HVAC systems, plumbing and electrical systems, etc.
• Appliance plans - covers home appliances when they need to be repaired or replaced, such as refrigerators, ovens, dishwashers, washers, and dryers, and more.
• Combination plans - covers both home systems and appliances.

Typically, these items are not covered:

• Garage doors and their tracks
• Windows
• Walls and doors
• Sprinkler systems
• Window A/C units
• Alarm systems and their wiring and ornamental fountains
• Pre-existing conditions
• Issues caused by insufficient maintenance
• Damage from accidents.

Do You Need a Home Warranty or Home Insurance Plan?

Home insurance is usually a requirement from a lender if you are getting a mortgage. If your home is paid off, it is still considered a ‘must-have.’ If your debt-free home was destroyed by fire, how easy would it be to buy another home?

A home warranty is optional but is a great way to avoid costly repair or replacement expenses down the road. 

It is a good idea if the appliances and systems in your home are old, or if you don’t have spare money available to pay for repairs.

Most people don’t plan for potential repair costs, and they almost always occur when you least expect them, often costing between $100 and $350 each.