Signing the contract on your first home can seem like a page out of a fairytale. But that exciting adventure can quickly turn into a nightmare when things start breaking down, natural weather conditions start acting up, and other normal but destructive events occur unexpectedly.
A burst water pipe in the middle of the night or a freak hail storm that destroys your beautiful tiling can quickly transform a storybook life into a living nightmare you can't get away from, which is why homeowners who want to continue the utopia will invest in home warranty and home insurance policies.
But, wait a minute. Aren’t agencies just trying to sell you more of the same thing? After all, if you already have home insurance, what do you need a home warranty coverage for? And vice versa. Many people have warranties, so isn’t home insurance just another gimmick?
To the untrained eye, home warranty and home insurance policies may seem like the same thing. In reality (which is where your home lives and where the damages and hefty bills that come along with them do as well), though, there's a world of difference between the two. If you're new to these topics, not to worry. We'll show you the ropes. Here's everything you could possibly need to know about home warranty, home insurance, the differences, and what you need to stay covered as a homeowner in 2019.
Ok, so what is the difference between homeowners insurance and home warranty? And does it really matter to you? If you are a homeowner, then it certainly should. To begin with, these two policies, while they look the same at first, are actually very, very different. It's very confusing for most homeowners, and if you don't understand the differences, you're not to blame. After all, both home warranty and home insurance policies cover damages done to certain parts of your home. So, it's understandable if you haven't read the fine print to figure out which is which until now. Here are the main areas where homeowners insurance and home warranty coverage diverge:
- The type of contracts you sign up for
- What’s covered
- How much you’ll pay as a deductible
- How much you’ll pay in premiums
What's more, warranties are not mandatory while home insurance generally is. Between the coverage area and the requirements, there's really a world of a difference between these two services, and a savvy homeowner will do well to learn the ins and outs of both. Here's a closer look at each one so that you can understand which you're getting coverage from, when, where, and how.
Home warranty is a plan that covers the costs of repairs or replacements for typical home systems and appliances that break down under normal wear and tear. So, a washing machine will probably be covered if the drainage system stops working after a few years of normal usage, whereas the same machine will not be covered if the damage was caused by a natural disaster. That’s included in home insurance, which we’ll cover in a minute.
While every home warranty provider is entitled to cover the items of their own choosing (and you will find discrepancies from time to time), some of the most commonly-covered items include:
- Microwave ovens (Built-in or free-standing)
- Garbage disposals
- Garage door openers
- Ceiling fans
- Exhaust fans
- Standing freezers
- Clothes dryers
- Washing machines
- Plumbing stoppages
- Water heaters
- Whirlpool bathtubs
Home warranty plans will also cover home systems, including your heating system, electrical systems, plumbing systems, and air conditioning units. Home warranty providers usually have a choice of either systems or appliances plans or a third plan that covers both. Most providers will also offer additional coverage for items like pools, spas, well pumps, central vacuums, roof leakage, septic systems, septic tank pumping, sump pump, and second fridges.
Home warranty plans vary depending on the type of coverage, the warranty provider, and the area in which you live. You can purchase coverage for roughly $300-$600 per year, though you can get promotions for less than that on your monthly premium. One thing that is dramatically different is the deductibles for home warranty. You'll generally pay between $50-$125 per visit whenever you call a technician to come and deal with a warranty-covered item. Many companies will let you choose between higher deductibles and lower monthly premiums or higher premiums for a lower deductible. The right choice for you is going to depend on how often you think you'll need to call in a technician and have your appliances serviced.
Homeowners insurance, well that’s a horse of a different color. In fact, this type of insurance covers any type of accidental damage that occurs to any part of your home and or your belongings due to specified natural occurrences or disasters. The most common damages that are covered under these policies include:
- Hail storms
- Damages caused by aircraft or vehicles
- Volcanic eruptions
- Damages caused by objects falling from on high
- Ice, snow, or sleet damage
- Electrical surges
- Freezing plumbing
And a few other occurrences. Homeowners insurance will cover the damage done to the structure of your home. So, if your kitchen is destroyed by a freak lightning storm, your homeowners insurance policy will pay to have it replaced or repaired. But, that’s not all. Homeowners insurance will also cover the exterior of your home. So, if you have a shed, a gazebo, or a vintage car parked in your driveway, the homeowners insurance policy will cover that as well.
What's more, homeowners insurance covers personal liability. That means if you or someone else is injured on your property, the insurance policy will usually cover this. This is quite possibly the most important aspect of your coverage because it means you are covered in the event that somebody wants to sue you for negligence.
Most mortgages from a public lender will require homeowners insurance as a safeguard on its investment. Really though, you should consider it a safeguard on your own investment because if an unfortunate tragedy does occur, your homeowners insurance policy will be there to protect you.
Homeowners insurance is an annual contract that is renewed each year by the policy provider. You can expect to pay somewhere in the range of $300 up to $1000 for a year of coverage. In addition to the annual premium (which may be paid off monthly), you can expect to pay a deductible. A deductible is an amount that you will have to pay in the event that a claim is made before the insurance policy kicks in.
Let's say your kitchen is damaged by a burst pipe under conditions that are covered by your home insurance policy. The repairs come to $5000, and you have a $500 deductible. You will pay $500, and then the insurance company will cover the other $4500 worth of damages.
A common question homeowners ask initially is whether or not both policies are needed. Once you read through the differences, however, it seems pretty clear that the two aren’t mutually exclusive. In fact, they complement one another. One keeps your belongings protected from everyday wear and tear, and the other extends those same levels of protection to your home in the event of natural disasters.
Of course, if you have new appliances and don’t mind shelling out the cash to have them repaired, home warranty may not be necessary for you at this time. Home appliance repairs run the average homeowners thousands of dollars per year, though. So, it’s really a calculation you have to make on your own. More often than not, most homeowners want the security and guarantee that comes from having both.
While we all hate to read the fine print, when it comes to something as important as home coverage, it’s really a must-read. Look at your policy carefully, understand what’s being covered (and sometimes more importantly, what’s NOT being covered), and choose a policy that has what you’re looking for. So, get the coverage that’s right for you and keep your home and your family protected against all eventualities.