Your home is likely your most valuable asset, and protecting it is essential. Both homeowners insurance and a home warranty protect your investment and finances in case of damage or a disaster. They can work together to safeguard your sanctuary, but they are distinct. Let’s clarify the relative value of home warranty vs. home insurance and the circumstances under which you might need both.
Mortgage lenders require you to acquire homeowners insurance. However, a home warranty is entirely optional. Our home warranty vs homeowners insurance guide will help you navigate the critical differences in their coverage.
What Is Homeowners Insurance and What Does It Cover?
Homeowners insurance protects you from financial loss if your home is damaged or destroyed by a “covered peril.” In the event of a fire, theft, vandalism, or certain types of natural disasters, a basic homeowners policy covers the repairs and the cost of lost or damaged personal items. Your insurance pays for necessary rebuilding and can cover your living expenses if you must vacate your home while the repairs are made.
What Is a Home Warranty and What Does It Cover?
A home warranty is a type of service contract that protects household systems and appliances. It can apply to plumbing, electrical, heating and air conditioning systems. Appliances like refrigerators, ovens, dishwashers, garbage disposals, washers, and dryers also fall under the same contract. Many home warranty contracts offer options for swimming pools and hot tubs.
A home warranty typically does not cover the breakdown of any appliance or system that has been improperly maintained.
Do I Need a Home Warranty if I Have Home Insurance?
Home warranties cover your home’s internal components such as appliances and air conditioning systems in the event of everyday wear and tear. These are not covered by a home insurance policy which covers damage to your home structure and personal property caused by major events such as fires, burglary, and vandalism.
An example will help clarify how home insurance vs. a warranty works and how they can work together. Consider how each works to help you deal with water damage.
Let’s say that years ago, you bought and installed a dishwasher and have maintained it properly ever since. Unfortunately, the seal failed due to normal wear and tear, and water flooded the kitchen and living room. The hardwood flooring, baseboards, and subflooring were severely damaged. Now what?
In this example, your homeowner’s insurance would pay to have the flooring repaired or replaced, and a home warranty would pay to replace the dishwasher.
The damages covered by homeowners insurance are typically far more costly than those covered by a home warranty.
Who Should Buy a Home Warranty
The decisions surrounding buying a home warranty vs. home insurance are very different. Mortgage lenders require homeowners insurance, but home warranties are entirely optional. Often, the advice is that first-time home buyers buy a home warranty until they learn to handle the new financial responsibilities. Others suggest that seniors who can no longer handle their own repairs benefit most from a warranty on their appliances and systems.
If you’re unsure about selecting a home warranty, consider the following:
- The age of your appliances: New appliances are covered by manufacturers' warranties.
- The age of your home’s systems: Older plumbing, electric lines, and HVAC equipment have more problems.
- How well you maintain your equipment: A home warranty will only replace an appliance or system that has been properly maintained.
- How handy you are: A home warranty will not pay for you to fix the issues yourself.
- Your financial reserves: Can you afford to absorb emergency home repairs a home warranty would cover?
- Research home warranty providers: Carefully research the warranty providers and the contract provisions.
- Peace of mind: For some people, the peace of mind a home warranty provides is more than worth the coverage premiums.
Home warranties can be helpful in certain circumstances, but they are not always necessary. On the other hand, homeowners insurance provides critical protections that most homeowners can’t do without. That is why most mortgage lenders require you to purchase homeowners insurance. To learn more about Wawanesa homeowners insurance, call 800-640-2920 to speak with a helpful agent and learn how to protect your investment best.
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