Home Insurance vs. Home Warranties

What’s the difference?

Both home insurance and home warranties are products that help homeowners manage the inherent risk that comes with owning a home. Sometimes these two products can be mistaken to cover the same conditions, however, this is not the case. In this article you will learn what each covers and why you should consider purchasing both to cover your investment.

Owning a home is one of the greatest investments you’ll make in your lifetime. Protecting your investment is not just smart, it’s integral. One of the best ways to protect your investment is by purchasing both home insurance and a home warranty. Purchasing both will cover your home, personal items, appliances, and vital system components should they ever need to be replaced or repaired. But understanding which items and situations are covered by either insurance or a warranty policy can be tricky.

What is home insurance?

A home insurance policy covers accidental damage to your home and belongings due to perils such as theft, storms, fires, floods, etc. There are four primary areas covered under a home insurance policy: the interior and exterior of your home, personal property, and general liability in the event someone is injured on your property.

A home insurance policy is usually mandatory and a bank will require you to obtain one before issuing a mortgage on a home. The policy is renewed yearly and costs vary depending on a variety of factors such as the construction of the home, location, and more. Home insurance policies have deductibles, which is the portion you will pay if a claim is made.

So for example, say a pipe bursts and floods your basement. An insurance adjuster will come to your home and gather information to complete a claim for repair or replacement of damaged items in your home. Once the claim is approved, the insurance company will deduct the amount of your deductible and issue you payment for the rest of the balance to cover the repairs to your home. This deductible can also assist in lowering your yearly premiums. The higher your deductible, the lower your yearly home insurance premiums will cost.

What is a home warranty?

A home warranty is a service contract that provides for the repair or replacement of your system components and appliances that fail due to age and standard wear and tear. For instance, components of your HVAC, electrical, plumbing, kitchen appliances, etc are typically covered under a home warranty and would NOT be covered by a home insurance policy. Some home warranty companies offer coverage for additional systems such as pools and spas. Home warranties are typically 12-month policies and are not mandatory to obtain a mortgage. A home warranty is purely elective, however, purchasing the right home warranty product is a smart purchase to help mitigate the risk of components failing due to age or wear and tear.

For example, say your furnace stops working. A licensed HVAC technician comes to your home to assess and diagnose the problem. If it’s determined that the system has failed due to covered conditions such as age, wear and tear, etc…the technician will repair the furnace, or if necessary, replace the system for just the cost of your service call. The protection a home warranty provides can potentially save you hundreds if not thousands of dollars out-of-pocket since they cover failures that are very common for homeowners to experience.

The simple reality is that – life happens and things break. When they do, proper home insurance and a home warranty are the best risk management assets you can have to ensure you aren’t bearing the brunt of the bill when life does happen and things do break.

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