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After securing your dream him, it is wise to protect yourself from the financial risk that comes with owning a house.
Emergency expenses as a result of damage, theft, accident, fire, faulty appliances, and so on, are some of the reasons why you need protection, and the best way to do that is to get home insurance and a home warranty.
While these two policies both offer protection (from financial risk) to homeowners, they differ in certain ways, and as a homeowner who wishes to get the needed protection, it is important that you understand this.
Keep Comparing Home Warranty vs. Home Insurance: What’s the Difference? to understand how both policies work and what kinds of differences they have.
Comparing Home Warranty vs Home Insurance
What Is a Home Warranty?
This is a service agreement that covers the cost of maintaining, repairing, and replacing home systems or items for a particular period. It however doesn’t always cover the complete cost of an issue. It helps homeowners to cushion the financial burden that comes with home maintenance.
Household items and appliances eventually develop one fault or the other, which would require you to spend money. When you have a home warranty, you can file a claim with the warranty company, and they will send a repairman to check out the issue and rectify it.
This not only saves you the headache of where to get the funds needed for repairs, it also saves you the stress of having to look for a competent and reliable repairman who can do the job well.
In exchange for being covered, the homeowner will pay a yearly fee that varies from a couple of hundred dollars to over $1,000, together with a service fee when an expert comes to your home to evaluate an issue.
It is usually advisable to get a home warranty when buying an older home that you don’t have much information regarding its items.
When getting a home warranty, it is advisable to read the fine print so you have a good grasp of what is covered and how the warranty works before agreeing. The average home warranty covers you for a whole year and can be renewed yearly.
What Does a Home Warranty Cover?
Home warranties cover main appliances and systems that eventually succumb to wear and tear. Below are the types of home warranties available:
1. System policies: These cover home items including electrical systems, plumbing systems, and HVAC systems. In some situations, the homeowner can also file a claim if there are problems with their fire alarm systems, septic systems, roofing systems, and central vacuum systems.
2. Appliance policies: Home items such as refrigerators, stoves, ovens, dishwashers, and other basic home appliances fall under this category. If any one of these develops a fault, a homeowner can file a claim with the warranty company, and a repairman will be sent over to either repair or replace the item.
3. Combination policies: These cover items included in both appliance and system policies.
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Upsides of Getting a Home Warranty
- It saves you the stress and time of looking for a competent repairman.
- It is not that expensive.
- It eliminates emergency spending on home repairs.
- It is convenient.
- Your home appliances and systems will be in the safe hands of able and reliable technicians (sent from the warranty company).
Downsides of Getting a Home Warranty
- If you don’t read the fine print before signing up, you might end up with a less-than-favorable deal.
- You may never need it.
What Is Home Insurance?
This is a type of property insurance that covers expenses that a homeowner incurs as a result of a loss or damage to their home and/or belongings. This means that the homeowner will get financial protection against losses as a result of theft, fire, wind damage, and so on.
They will also be covered if an accident occurs or if someone gets injured in their home or on their property. There is usually a liability limit that determines how much coverage the insured homeowner has in case something bad happens.
When a claim is made following the occurrence of any of the incidents covered under home insurance, the insured will have to pay a deductible.
The insurer will usually devaluate the insured property using factors such as age, use, condition, and so on. The devaluated value is subtracted from the cost of replacement to determine how much to give to the insured. This is known as the actual cash value (ACV).
What is a Deductible?
A deductible is a particular amount of money that the insured has to pay out of their pocket towards an insured loss.
A deductible is how risk is shared between the insured, the policyholder, and the insurer. Homeowners policies are usually calculated using a percentage of the home’s insured value.
Also, deductibles generally apply when a property gets damaged, not when someone gets injured on your property. The higher the deductible on an insurance contract, the lower the insured’s premium (monthly payment).
What Does a Home Insurance Cover?
- Damage to homeowner’s assets.
- Liability for injuries incurred by guests on your property.
- Personal liability.
- Damage caused by natural disasters.
- Damage to the home structure.
- Extra living expenses if the homeowner is unable to live in their home due to a named hazard.
- Fire or lightning.
- Theft.
- Explosion
What Doesn’t Home Insurance Cover?
- Most home insurance policies don’t cover:
- Maintenance issues.
- Destruction from earthquakes.
- Flood damage.
Who Needs a Home Insurance?
- Homeowners who wish to protect their home.
- Mortgage borrowers.
- People who wish to ensure financial security.
Who Doesn’t Need a Home Insurance?
- Homeowners who can’t afford it.
- Those who only require protection from regular wear and tear.
Home Warranty vs. Home Insurance
A home warranty on the other hand, covers the cost of maintaining, repairing, and replacing home systems or appliances including HVAC, electrical, and plumbing.
A home insurance covers damage or loss as a result of fire, theft, vandalism, wind, and so on. It also covers you if someone gets injured or if there is an accident on your property.
While not as important as home insurance, a home warranty helps to cover expenses that home insurance policies don’t. It provides an extra layer of protection to lessen the financial risk that comes with owning a house.
Comparing Home Warranty vs. Home Insurance: What’s the Difference?
Although a home warranty can complement home insurance and help provide more extensive coverage, there are some major differences between the both of them.
1. Mortgage lenders don’t usually mandate borrowers to get a home warranty. Home insurance on the other hand is compulsory.
2. Home insurance covers damage and loss of property, while home warranties cover faulty home systems and appliances.
3. The limits on home insurance are usually higher compared to the ones on home warranties.
4. Home insurance offers liability insurance while home warranties do not.
To Draw the curtain:
Home insurance helps to cover the damage or loss as a result of fire, theft, vandalism, and so on, while a home warranty helps to cover the expenses arising from faulty appliances and systems.
A home warranty complements a home insurance but they both differ in certain ways.
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