The Difference Between Home Insurance and a Home Warranty Policy

Many Buyer’s question the difference between a home insurance policy and a home warranty plan/policy.  They serve two difference purposes when it comes to protecting your property.

  1. Home Insurance:

    • Purpose: Home insurance primarily protects the home from damage due to unforeseen events like fires, storms, vandalism, or theft. It also covers liability if someone gets injured on the property.
    • Coverage: It covers the structure of the home and, depending on the policy, personal belongings inside. For example, if a tree falls on the house or if there’s water damage from a burst pipe, the insurance would help pay for repairs or replacement.
    • Required: Most mortgage lenders require buyers to have home insurance as part of the loan agreement.
    • Limits: It does have limits, meaning if the damage exceeds the policy limit, you may have to pay the difference. You also have a deductible, which is the amount you pay out-of-pocket before the insurance coverage kicks in.

  2. Home Warranty:

    • Purpose: A home warranty is a service contract that covers repairs or replacements for major systems and appliances in the home, such as HVAC systems, plumbing, electrical, or kitchen appliances like the refrigerator or oven.
    • Coverage: It doesn’t cover damage from accidents, weather, or disasters like home insurance. Instead, it’s there to help with normal wear and tear. If an appliance breaks down or a system stops working, a home warranty helps with the cost of repair or replacement.
    • Optional: Unlike home insurance, a home warranty is usually optional, but many buyers consider it for added peace of mind, especially for older homes.
    • Limits: Like insurance, home warranties have limits, and you often pay a service fee for each repair or claim. The contract will outline what is and isn’t covered, so it’s important to review it carefully.

Summary:

  • Home Insurance: Protects against loss or damage to the home from unexpected events (like fires, theft, or storms).
  • Home Warranty: Covers repair or replacement of systems and appliances in the home due to normal wear and tear.

Both are important, but they cover different things, and understanding their roles will help you make informed decisions about protecting your new home.