When buying a new home, you may be wondering whether you need homeowners insurance, home warranty or both. Although they may sound similar, these two types of policies are very different in terms of coverage and purpose.
What is Homeowners Insurance?
Homeowners insurance is a type of policy that covers the cost of repairing or replacing your home and personal belongings in the event of unexpected damage or loss caused by certain perils.
Some of the perils typically covered by homeowners insurance include:
Perils Covered by Homeowners Insurance |
Perils Not Covered by Homeowners Insurance |
|---|---|
Fire and smoke damage |
Flood damage |
Wind and hail damage |
Mold and mildew damage |
Theft and vandalism |
Earthquake damage |
Water damage from burst pipes |
Termite damage |
Liability lawsuits |
Wear and tear |
If your home is damaged or destroyed by a covered peril, your homeowners insurance policy will help cover the cost of repairing or rebuilding your home, as well as replacing any personal belongings that were damaged or lost.
How Does Homeowners Insurance Work?
When you purchase homeowners insurance, you will be required to pay a monthly or annual premium, depending on the policy and the insurance provider you choose. In exchange, your insurance company will agree to cover the cost of any covered losses or damages that occur during the policy period, up to the policy limits.
If you experience a covered loss, you will need to file a claim with your insurance company. Your insurance company will send an adjuster to assess the damage and determine the amount of coverage you are entitled to receive.
Do You Need Homeowners Insurance?
If you own a home, homeowners insurance is typically required by your mortgage lender. Even if you own your home outright, it is still a good idea to have homeowners insurance to protect your investment and personal belongings.
What is a Home Warranty?
A home warranty is a service contract that covers the cost of repairing or replacing certain home systems and appliances in the event of mechanical failure or normal wear and tear.
Common items covered by a home warranty may include:
Items Covered by a Home Warranty |
Items Not Covered by a Home Warranty |
|---|---|
Heating and cooling systems |
Structural damage |
Electrical systems |
Plumbing issues not caused by normal wear and tear |
Kitchen appliances |
Pre-existing conditions |
Washer and dryer |
Items not properly maintained |
Garage door opener |
Outdoor items such as sprinkler systems or swimming pools |
If a covered item breaks down during the warranty period, the home warranty company will send a service technician to assess and repair the issue. If the item cannot be repaired, the warranty company will replace it or offer a cash payout, depending on the terms of the contract.
How Does a Home Warranty Work?
When you purchase a home warranty, you will be required to pay an annual premium, usually ranging from $300 to $600 per year, depending on the level of coverage you choose.
If a covered item breaks down, you will need to contact the home warranty company to file a claim. The company will then send a service technician to assess the issue and determine whether the item can be repaired or replaced.
Do You Need a Home Warranty?
Whether or not you need a home warranty depends on your personal preferences and circumstances. If you are purchasing a new home that comes with a warranty, you may not need to purchase an additional policy.
However, if you have older appliances or systems that are out of warranty, a home warranty may give you peace of mind and help you avoid unexpected repair costs. Keep in mind that home warranties do not cover everything and may have limitations and exclusions.
Homeowners Insurance vs Home Warranty: Key Differences
While both homeowners insurance and home warranties offer some protection for your home and belongings, there are key differences between the two policies:
Homeowners Insurance |
Home Warranty |
|---|---|
Covers unexpected damage or loss caused by certain perils |
Covers the cost of repairing or replacing certain home systems and appliances in the event of mechanical failure or normal wear and tear |
Covers both the structure of your home and personal belongings |
Covers specific items listed in the policy |
Required by mortgage lenders |
Optional |
Does not cover routine maintenance or wear and tear |
Covers mechanical failure and normal wear and tear |
May include liability coverage for personal injury or property damage caused by you or your family members |
Does not offer liability coverage |
FAQ: Frequently Asked Questions
Can I Have Both Homeowners Insurance and a Home Warranty?
Yes, you can have both homeowners insurance and a home warranty. In fact, many homeowners choose to have both policies to ensure they have comprehensive coverage for their home and personal belongings.
Should I Choose a Home Warranty or Homeowners Insurance?
Deciding whether to choose a home warranty or homeowners insurance depends on your personal circumstances and preferences. If you are purchasing a new home, you may be required to have homeowners insurance, but you may also want to consider a home warranty for additional protection.
If you have older appliances or systems that are out of warranty, a home warranty may be a good option. However, if you live in an area prone to natural disasters or other perils, homeowners insurance may be a better choice.
Can I Renew My Home Warranty?
Yes, you can usually renew your home warranty on an annual basis. However, the terms and conditions of the policy may change from year to year, so be sure to review the policy carefully before renewing.
How Do I Choose a Home Warranty Company?
When choosing a home warranty company, be sure to research their reputation and customer reviews. Look for a company with a good track record of paying claims and providing prompt and reliable service.
Compare the coverage and pricing of different companies to find the best fit for your needs and budget.
What Items Are Not Covered by a Home Warranty?
Home warranties do not cover everything. Items typically not covered by a home warranty may include pre-existing conditions, outdoor items such as swimming pools or sprinkler systems, and structural damage.
Be sure to read the policy carefully to understand what is and is not covered.
Can I Use My Own Service Provider with a Home Warranty?
Many home warranty companies require you to use their own service technicians to assess and repair covered items. However, some companies may allow you to use your own provider, although you may need to pay a service fee.
Be sure to read the policy carefully to understand the requirements and limitations.
Conclusion
Homeowners insurance and home warranties serve different purposes and provide different types of coverage for your home and belongings. Understanding the differences between the two policies can help you make informed decisions about protecting your investment and avoiding unexpected repair costs.
Whether you choose homeowners insurance, a home warranty, or both, be sure to carefully review the policy terms and conditions to ensure you have the right level of protection for your needs.