Home warranty vs. home insurance, explained

You've just made an offer on a home — congratulations! However, to secure a loan, you might need to purchase a homeowners insurance policy ... or is it a home warranty?

Let's explore the similarities and differences between a home warranty vs. home insurance and discuss who could potentially benefit from purchasing them.

What’s the difference between home warranty and home insurance?

While there are certain parallels between the two, there are plenty of differences between a home warranty and homeowners insurance, from the items they cover to the situations in which they may come in handy. A home warranty is more specific and targets only appliances and home systems, while homeowners insurance covers the entire house as well as personal belongings. Also, home warranties offer protection from regular wear and tear, while homeowners insurance protects against perils and losses.

What is a home warranty?

Every appliance or home system has a lifespan. A home warranty may fully or partially cover the repairs or replacements of major home systems and household appliances when they break down due to normal wear and tear. It can typically be purchased for either newly-built or older homes and usually lasts a year, with the possibility of renewing the contract annually.

What does a home warranty cover?

As mentioned earlier, home warranties typically cover household appliances like washers and dryers, refrigerators, ovens, dishwashers and garbage disposals. They may also commonly include plumbing, HVAC, electrical systems or water heaters. Moreover, homeowners may be able to pay for additional coverage on other items like pools, saunas or lawn sprinkler systems.

What does a home warranty not cover?

While a home warranty policy may be useful in many situations, it has its limitations. For example, some malfunctions might not be covered if they occur due to faulty installation, misuse or insufficient maintenance.

Is a home warranty required?

Generally, home warranties are not obligatory for property owners. However, some homeowners may choose to purchase one to protect themselves against significant unexpected expenses.

What is homeowners insurance?

Homeowners insurance is a type of property insurance that typically covers the structure of the home and the personal belongings contained within against various sorts of losses and damage. Most homeowners insurance plans also come with liability coverage, which may protect the owner against being financially responsible for someone's injuries or damage if an accident occurs on their property. Homeowners insurance typically comes as an annual policy, and its price may depend on various factors, such as the property's value, location and choice of deductibles.

What does homeowners insurance cover?

The exact list of things the home insurance covers would depend on the insurance company and the chosen plan. However, standard coverage might extend to the house structure, other structures (such as a shed or garage), belongings, liability protection and additional living expenses, such as staying in a hotel while the home is being repaired. The policy may typically include protection against fire, windstorms, explosions, vandalism, theft and damage from vehicles.

What is not covered by homeowners insurance?

Similarly, the standard homeowners insurance policy may not protect against every disaster that may happen. For example, it typically does not include earthquake damage, construction damage, mold and pest infestation.

Is homeowners insurance required?

Unlike a home warranty, homeowners insurance may be required in certain instances. While it is not legally mandated in the U.S., lenders often require a borrower to purchase homeowners insurance before approving the mortgage loan. So, it may become a necessary step on the road to purchasing and owning a home.

Who may benefit from buying a home warranty?

A home warranty policy may be worth it for homeowners who want to protect themselves against large expenses related to appliance and system malfunction. It may also be an option for those who don't have a sufficient emergency fund, live in an older house with outdated appliances or are new homeowners who may feel overwhelmed by increased responsibility.

Who may benefit from buying homeowners insurance?

For many property owners, buying homeowners insurance may be a requirement, not a choice. Still, it may benefit even those who don't have to take out a loan. For example, a homeowners insurance policy may be something to look into for those who want to protect their house and belongings inside from theft and various perils. This type of insurance could possibly help owners safeguard themselves against large financial losses and provide them with peace of mind.

In summary

Some buyers and property owners may find distinguishing between a home warranty vs. home insurance a little confusing. Homeowners insurance is a policy that covers the house against problems like fire or theft, whereas a home warranty mainly protects against regular wear and tear. What they tend to have in common, however, is covering homeowners against unexpected financial losses and providing them with some peace of mind, knowing that their home (or some parts of it) is insured.

Homeowners insurance vs. a home warranty FAQs

1. Is a home warranty worth it?

That depends on the property owner's situation and preferences. For example, it could possibly be worth it for homeowners who live in a house with older appliances or those who don't want to search for maintenance specialists or deal with repairs.

2. Is a home warranty required at closing?

Unlike homeowners insurance, a home warranty is not required at closing. However, taking it into consideration during the selling process may benefit both parties. Sellers may find it acts as an additional bonus and incentive for the buyers. On the other hand, buyers may want to consider purchasing a home warranty to protect themselves against additional expenses right after buying a home.

3. Can you use home insurance and a home warranty at the same time?

A home warranty and homeowners insurance are not mutually exclusive, and some property owners may choose to purchase them both. Since they offer different types of protection and cover different items, it may be helpful for homeowners to look into getting both home insurance and a home warranty.