Like most homeowners, you have a lot of money invested in your home. But, you also understand that things happen, and protecting your investment and its contents against unforeseeable situations is important. But if you’re shopping for home insurance vs. home warranty policies, the lines between the two might be starting to blur. What are these coverages and how do they differ? Let’s find out.
What Is a Home Warranty?
A home warranty is an agreement between a homeowner and a third-party warranty company that provides coverage for certain items within the home. This policy protects the homeowner’s investment in the event that if a covered item should break or fail, the warranty company will cover most of the repair bill. All the homeowner is responsible for (in most cases) is the service fee, which typically ranges from $50 to $150, and is agreed upon in the contract.
What Does a Home Warranty Cover?
Home warranties cover major appliances and systems that fail due to everyday use. There are typically three types of home warranties available. They include appliance policies, system policies and combination policies. Appliance policies cover items like refrigerators, built-in microwaves, stoves, ovens, dishwashers, washers and dryers and other typical appliances found in a home. Should one of these items fail, the homeowner can file a claim with the warranty company to have a technician respond and repair the appliance. If they’re unable to repair the item, the warranty company may even replace it.
System policies cover items such as electrical systems, plumbing systems and HVAC systems. In some cases, these policies may cover roofing systems, fire alarm systems, central vacuum systems and septic systems as well. If there are issues with these major systems, the homeowner can file a claim and the warranty company will send the proper contractor to repair the problem.
Combination policies act as both appliance and system policies.
If a covered item should fail or break due to typical wear and tear, the warranty company will most likely cover it. Understand that this does sometimes require the homeowner to keep maintenance records to prove that the items aren’t failing due to neglect.
What Doesn’t a Home Warranty Cover?
There are plenty of items or circumstances which a home warranty company will not cover. First, home warranties do not cover structural issues, interior or exterior finishes, furniture or other belongings. Also, should an item covered under warranty break due to neglect, misuse, abuse or an accident, the warranty company will not cover the repair.
It’s important to note that many home warranty companies set limits as to how much a single repair can cost. For example, if the homeowner’s extremely high-end refrigerator fails and requires a repair item that costs $1,200, but the home warranty company set a limit of $1,000 for refrigerator repairs, the homeowner will have to pay the additional cost.
What Is Home Insurance?
Home insurance is an agreement between a homeowner and a third-party insurer that protects the homeowner’s investment against accidents, building failures and natural disasters. These policies even provide some degree of general liability insurance against injuries incurred by other people while on the property.
Any home paid for with a mortgage will be required to carry home insurance by the lien holder (the bank).
What Does Home Insurance Cover?
Home insurance covers much more than a home warranty. There are four types of coverages, including dwelling, other structures, personal property and liability.
Dwelling coverage helps to pay for repairs or losses due to covered events. These events may include fires, storm damage, fallen trees or other unforeseeable events.
Other structure coverage offers the same type of coverage as dwelling coverage with the exception that it’s specifically designed for detached garages, sheds and even guest houses built separately from the home. Personal property coverage helps homeowners recover financial losses to the items within the home or other structures damaged by covered events. So, if there was a plumbing leak that ruined a couch, the insurance company may cover the damage.
Liability insurance protects the homeowner against financial losses due to someone getting hurt on the insured property. Or, if they accidentally damage another person’s property, liability coverage can protect them against financial losses. If an incident occurs, the homeowner can file a claim with the insurance company. At that point, the insurance company will send an adjuster to the property to assess the damage and assign a value.
What Doesn’t Home Insurance Cover?
Every policy is different, but there are some general items that most insurance policies do not cover. They include:
- Damage from earthquakes
- Flood damage
- Maintenance issues
Like a home warranty, home insurance won’t cover the entire bill. Rather than a service fee, homeowners using their home insurance policy will have to pay a deductible for each instance. For example, if the homeowner’s insurance deductible is $1,000 and a covered event occurs with a total value of $3,000, the homeowner will receive $2,000 for the damage ($3,000 less the $1,000 deductible).
For more information and description of differences please click here...
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