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Home Warranty Versus Home Insurance

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If you are in the process of buying a house, you may have seen a seller offering a home warranty policy when you buy their house. However, if you are using a mortgage to purchase your home, you may have noticed that you must have a home insurance policy to qualify for most loans. Home warranty versus home insurance — what policy do you need and how do these covers differ? Read on to learn more about these two types of home protection plans.

What is a Home Warranty?

A home warranty policy is a type of home protection you can purchase that helps you make more affordable repairs or replacements to major components in your home. Without a home warranty plan, you’ll typically be responsible for 100% of the cost of replacing or repairing your home’s systems and appliances if they break down after you move into the house.

That can mean thousands of dollars out of your pocket if you need a new air conditioning system, HVAC system, dishwasher, or other appliance. If you can’t afford the repair or replacement out of pocket, you may need to take out a loan or put the balance on your credit card to bring your home up to the standards you’re used to.

With a home warranty policy, you can have peace of mind knowing you have a more affordable option if something in your home breaks down due to normal wear and tear. When you purchase a home warranty policy, you agree to a list of terms that dictate which home appliances and systems are covered and to what extent.

Many home warranty policies include coverage for a mix of systems and devices, but you can purchase a stand-alone device warranty or a system warranty if you prefer. In exchange, you’ll pay a monthly premium to maintain your coverage, similar to a Home Insurance Politics.

If anything in your home fails due to normal use, file a claim with your warranty company. Your home warranty provider will review your claim and send a technician to your home to perform a repair if you are covered. The technician will diagnose your problem and provide you with a solution in exchange for a nominal fee for service under your contract. Most home warranty companies have service fees between $75 and $125, which is significantly less than what you can expect to pay for an out-of-warranty home repair or replacement.

What is home insurance?

A home insurance policy is insurance that compensates you for major damage to anything you own. Like other types of insurance, you pay a monthly premium to maintain your home insurance coverage and file a claim for damage to your property. Your insurance will reimburse you for repairs as long as the condition that caused the damage is covered under the terms of your policy.

Your home insurance The policy will include a range of covered perils that you are protected against while living in your home. If a covered peril causes damage to your property, you may be entitled to reimbursement from your home insurance company. Some examples of perils commonly covered include fire, electrical storms and burglary.

Home insurance policies also include robbery and theft coverage, which can extend to cover you even when your items are stolen from a location other than your home. For example, if you have a locker at work where you keep valuable electronics and the locker is broken into while you’re working, your home insurance may reimburse you for the stolen items.

Most mortgage lenders require you to maintain a certain level of home insurance as a condition of your loan approval. You may need to provide proof of coverage at closing before moving into your new property, or you may have to pay a portion of your escrow insurance costs before closing.

How do home warranties and home insurance differ?

Home warranty policies and home insurance are not the same thing, nor interchangeable when you have a breakdown on your property. Here are some of the most dramatic ways in which home insurance and home warranties vary.

  • Mortgage Companies Requirement: Most mortgage lenders require you to provide proof of a valid home insurance policy as a condition of approval for a home loan. While some home sellers choose to offer home warranty coverage to entice buyers, you don’t have to buy a home warranty policy to get a mortgage.
  • Circumstances covered: To use your home warranty policy, your home component that needs repair must have been damaged due to normal wear and tear. If a specific incident caused damage to the item in your home (for example, a fire in the kitchen), the damage is usually covered by your home insurance policy.
  • Your percentage payment: When you purchase a home insurance policy, your plan will include information about your deductible. Your deductible is the amount you must pay for the cost of restoring your home before your homeowner’s insurance kicks in and starts reimbursing you.

For example, if you have a home insurance policy with a $500 deductible and you incur $2,000 in damages, you would pay $500 of that $2,000 balance. Your home insurance provider would then cover the remaining $1,500 portion of the bill up to your coverage limit. You don’t need to pay your deductible more than once a year; if you need to file another claim and you have already paid your deductible, your insurance will start covering the bills immediately without further payment from you.

Although some home warranty companies consider their service fees a deductible, these fees are not true deductibles because they are due each time you file a claim. Unlike a home insurance policy, you don’t “respond” to your home warranty service charge – if you file 10 claims with your home warranty, you’ll pay 10 times your service charge. It is therefore particularly important to choose a home warranty option with affordable service fees that do not unduly reduce the usefulness of the plan.

Do you need both home insurance and home warranty?

Although you need a home insurance policy to buy a home in many circumstances, mortgage companies don’t require you to have a home warranty. However, buying both policies can be a good idea if you are looking for a more comprehensive range of home protections. Home warranty policies were designed to fill in some of the holes left in your home insurance policy, which can be beneficial if you are struggling to cover the cost of a sudden breakdown in your home.

Compare home warranty policies

If you think a home warranty might suit your needs, you have many options when selecting a policy. Companies like Choice Home Warranty, America’s First Home Club, and Select Home Warranty offer policies to property owners across the country. Many policy providers offer multiple coverage options, and coverage inclusions and limits vary from provider to provider. It is therefore particularly important to compare several companies and obtain several quotes before investing in a cover.

Benzinga offers information and opinions on the following in-home warranty service providers. Consider continuing your search for the best home warranty policy using some of the links listed in the table below.

  • Best for

    Pay-as-you-go protection

    securely through the Choice Home Warranty website
  • Best for

    Appliance and home warranties

    securely through the Select Home Warranty website
  • Best for

    Home Component Repairs

    securely through the Home Warranty of America website

Frequently Asked Questions

Are the insurance and warranty the same?

No, insurance and warranty are not the same thing. A home warranty policy is a type of protection that gives you a more affordable repair or replacement when major components in your home fail. Home insurance compensates you for damage caused to the structure of your home as well as to the elements of your home when the damage is caused by a covered peril.

What is the main purpose of a home warranty?

The main purpose of a home warranty is to help you get more affordable home system and appliance repairs and replacements in case something fails due to normal wear and tear. Unlike a home insurance policy, home warranties cover you if your home’s systems or appliances fail due to regular use and not a traumatic event like a fire or electrical strike.

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