We often think of insurance, warranties, and guarantees as interchangeable words. However, that is not the case for the real estate industry and there are many differences between a home warranty and home insurance.
Confusion is bound to arise which is why it is important to realize the differences between the two and if you need to invest in the type of coverage offered.
Keep reading our home warranty vs home insurance guide to have all of your questions answered:
1. What Is Home Insurance And What Can It Cover?
We are all quite familiar with insurance since we all have taken life insurance, health insurance, car insurance and maybe even technology insurance.
Just like these types of insurance, home insurance also helps cover any damages to the insured property.
Homeowners' insurance covers any damage caused by unpredictable forces such as tsunamis and wildfires. Natural disasters are usually the most likely reason homeowners file an insurance claim.
Insurance coverage amounts also change based on location. For example, if you live in California, you are more likely to face a wildfire as compared to a hurricane. If you live in Florida, the opposite is true. This means that coverage is usually dependent on many factors including your home location.
Home insurance will usually cover your entire house as a whole and provide money based on the damage caused by unpredictable events. This includes getting paid to rebuild the part of a house that was damaged by the hurricane or even getting help to repair whatever was damaged.
2. What Is A Home Warranty And What Can It Cover?
A home warranty on the other hand aims to protect specific systems and appliances in your home from the costs associated with repairs and replacements. Home warranties often cover repairs and replacements that are needed due to general wear and tear of covered items over time.
These costs can get pretty hefty if you have to replace appliances due to extreme depreciation. This is where a home warranty can prove mighty beneficial. You can get enough coverage money to even replace your expensive appliances without having to worry about the costs as it will be covered under the warranty.
3. When Should I Get Home Insurance?
In most cases, you won’t have to worry about deciding when to get homeowners insurance as you are required to have it when you purchase a house or opt for a mortgage.
Your real estate agent or your corporate real estate agency will most likely help you get a good deal on this as they always have insider connections.
Make sure to be smart about choosing your policy and talk to your agent before finalizing the insurance policy you want to purchase.
4. When should I Get A Home Warranty?
A warranty is a little different from an insurance policy as it is not required to be purchased. There are two main factors that will help you decide whether it is time for you to purchase a warranty or not.
The first is, has the manufacturer warranty on your appliances expired already?
If yes, then you need to start looking for the best Home Warranty company with great coverage policies.
Secondly, is your house an old structure?
If yes, then you need to buy a home warranty.
These two factors are important because they can pretty much guarantee that your appliances will break often and you will need to repair them over and over before you decide it is time for a replacement.
5. What Is The Main Difference Between The Two?
The main difference between a home warranty and a home insurance policy is quite clear.
One covers any home damage caused by unpredictable events such as burglaries and natural calamities while the other covers the breakdown of mechanical systems and home appliances.
However, there are other differences too such as home insurance being a requirement while a warranty is optional.
Similarly, home insurance claims are usually more expensive and cover a variety of damage whereas a warranty is for smaller amounts and covers specific systems.
6. How Much Should I Be Paying For Both?
A homeowners insurance policy and a home warranty can both be customized to fit each consumer’s needs. However, this also means that you might be paying more to get something covered.
For example, since most insurance policies do not cover earthquakes, you can pay more to have your house covered in the event of an earthquake.
Similarly, if you have luxury appliances and fixtures in your house such as a pool or an elevator, you can pay extra to have it covered under a warranty.
Since these insurance policies and warranty packages give you a chance to configure add-ons, the deductible varies from person to person. However, the average price range for a home warranty is around $450 - $900 per year.
As far as insurance prices go, you can expect to pay somewhere between $1400 - $2000 per year depending on the state you live in and the cost of your house as the home insurance cost in every state will be different.
For example, a home insurance policy in Utah will be much cheaper than a home insurance policy in Oklahoma for the same house. This is also something to keep in mind when thinking of making real estate investments for a vacation home.
All in all, there are many differences between a home insurance policy and a home warranty. These differences range from the type of events covered and deductible prices to their different use cases.
As a homeowner, it is important for you to invest in both types of protection for your home and to protect your family.
Take your time and read all policy-related documents carefully. Be wary of what policy providers add in the fine print to protect yourself from losing coverage based on a technicality or because you did not read the fine print.
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