The Difference between Homeowner's Insurance and Home Warranties

When buying a home, especially the first home, it can be a confusing and frustrating process. Finding a home, making offers, getting the home inspected, figuring out what escrow is, and the closing process can often leave homebuyers stress and confused.

Fortunately, all the stress, complications, and money that go into buying a home usually provides a great reward when moving into the new home. However, after everything that goes into buying that home, it is important to protect that home from the various risks a homeowner faces.

Protecting a home can be another complicated and confusing process. There are homeowner insurance policies and home warranties available to provide the complete protection needed to keep a home safe and protect the new homeowner's budget.

What is a Home Warranty?

A home warranty provides protection for the systems and appliances in the home. It offers service repairs or even replacements of covered systems or appliances that breakdown due to normal wear and tear. There are home warranty companies that can provide a variety of coverage options to protect these and other items in the home.

A home warranty is basically a service contract. Homeowners choose a warranty and choose from various add-ons to that warranty to provide protection for the various systems and appliances in the home. This contract is usually a 12-month contract with a small monthly fee based on the type of contract chosen.

If a covered system or appliance breaks down, contract holders simply contact the company to dispatch one of their network service providers. Homeowners pay a set fee for each service call, regardless of whether it is a repair or a replacement.

This warranty could potentially save homeowners thousands of dollars. This could be very beneficial for new homebuyers who may be facing a limited budget due to the various costs of buying a home.

What does a Home Warranty Cover?

Typically, homeowners purchase the standard systems and appliances home warranty. This contract covers the major systems in the home, such as the heating, cooling, electrical, and plumbing in the home. It also covers the basic kitchen appliances and the washer and dryer.

Homeowners have the option to get a contract that only covers the basic appliances or the basic systems of the home if they choose. They can also purchase additional options to cover various other things in the home to protect them against the cost of a breakdown.

Homeowners who have additional appliances in the home may want to add coverage for these items. This can include additional refrigerators, wine coolers, standalone freezers, or even a pool or spa. This can provide protection for all the appliances and features a homeowner may want to add to make their home more comfortable.

Homeowners can even provide coverage for various systems and aspects of a home that are not normally included with the standard contract. Extended pipe leak coverage or even roof leak coverage can be added to the contract. Each home and homeowner are unique and their warranty can be customized to meet the needs of the individual.

Benefits of a Home Warranty

A home warranty provides many benefits for the new homeowner. The main benefit it can provide is the cost savings for these individuals. When purchasing a home, there are a lot of costs that must be paid before the home can be purchased, such as the home inspection and closing costs. This can leave a homeowner's budget pretty tight, especially the first year.

Even newer systems or appliances can break down. The costs of repairs can be pretty high. Replacement costs can be far more than a new homebuyer can afford. A home warranty covers those costs for the flat service fee paid by the homeowner. This can be a great savings when the budget is really tight.

Another benefit of a home warranty is the service professionals in their network. When moving to a new home, it can be hard finding a trustworthy service provider in a new area when a breakdown occurs. Homeowners can simply contact the home warranty company and a local provider will be dispatched.

This service can be a benefit for elderly homeowners as well. Any issue with their systems or appliances can be easily remedied with a single call to their home warranty provider. This can save a lot of hassle and confusion for elderly homeowners.

What is Homeowner's Insurance?

Unlike a home warranty, homeowner's insurance is usually required by the lending institution when getting a mortgage to purchase the home. This provides the bank with some security if the home is destroyed in some kind of covered event.

Homeowner's insurance provides coverage for the structure of a home and often the belongings in the home in the event of an event that causes severe destruction to the home. This can include fire, storms, theft, and vandalism.

Homeowner's insurance can also provide liability coverage for the property. This protects the homeowner from the costs of someone getting injured on the property. In general, a homeowner's insurance policy provides coverage for unexpected events that can cause damage to the home or others.

What does Homeowner's Insurance Cover?

Homeowner's insurance provides coverage for the entire home and its contents. It can also cover additional buildings on the property, such as garages or sheds. Most homeowner's insurance policies also provide liability coverage.

Unexpected events that cause damage to the home are typically what is covered. This can include fires, storms, lightning, and even hail. The insurance, depending on the policy, can cover the cost to repair the damage or even completely rebuild the home when necessary.

Most homeowner's insurance policies provide a set dollar amount to cover the personal belongings in the home. If there are valuable items in the home, more coverage can be added to cover those items in case they are damaged or stolen.

Homeowner's insurance can also cover damages and losses due to theft or vandalism. Repairs or replacement of the items that were stolen or damaged can be covered, minus any deductible required on the policy.

For those homeowners that live in areas where floods, earthquakes, or hurricanes are common, they may need to purchase additional coverage options. These events are not typically covered by a standard homeowner's insurance policy.

Benefits of Homeowner's Insurance

There are many benefits to having a homeowner's insurance policy. The main benefit is providing coverage to replace or repair a home if an unexpected disaster occurs. Homes are expensive. The total loss of a home due to fire or other events can be a devastating loss. Homeowner's insurance helps provide financial coverage for these instances.

Another benefit is the mortgage on the home. If a person purchases a home using a mortgage but does not get homeowner's insurance, they are putting themselves at great risk. If a major event occurs that destroys their home, not only are they now unable to repair that home, but they are also still on the hook for the mortgage.

Liability protection in a homeowner's insurance policy can also be a great benefit for homeowners. If a neighbor stops by the home and falls on a broken step, the homeowner could be financially responsible for all the costs of their injury. Homeowner's insurance can provide financial coverage for these injuries.

The liability protection also covers if a person in the home causes damage to someone else's property, as well. For example, if the homeowner's child is playing ball in the yard and accidentally sends their ball through the neighbor's window, the homeowner's insurance can provide coverage for that damage.

Why Both are Important for a Home

Owning a home is also accepting all the risks that go along with that home. Some of these risks are unexpected, some of them are expected. Having both a homeowner's insurance policy and a home warranty, homeowners can be protected in both situations.

Many of the events that are covered by homeowner's insurance are unexpected events. Home warranties provide coverage for things that most people expect to happen eventually. Appliances get old, home systems wear out, they eventually break down and need service.

Buying a home is often a joyous event that is an investment in one's future. In many cases, homeowners plan to spend many years in their new home. Over the years, things will break down, incidents will happen, being properly protected can ensure the home and the homeowner's future are protected from whatever the world throws at them.

Although in many cases, homeowner's insurance is a requirement, a home warranty is optional. However, both of these policies can provide the complete benefits that can ensure the new home stays a happy and comfortable place for the homeowner and their family.