Looking for the quickest answer? Our top choice for home warranties is Choice Home Warranty.
If you’re in the process of buying a home, you may have seen a seller offering a home warranty policy when you buy their house. However, if you’re using a mortgage to buy your home, you might have noticed that you have to have a homeowners insurance policy to qualify for most loans. Home warranty versus home insurance — which policy do you need, and how do these coverages differ? One is a service contract and the other is a broad-ranging policy. Read on to learn more about these two types of home protection plans, how to choose a home warranty company and how a home buyer should approach these plans.
What is a Home Warranty?
A home warranty policy is a type of home protection you can purchase that helps provide you with more affordable repairs or replacements for your home’s major components. Without a home warranty plan, you’ll usually be responsible for 100% of the cost of replacing or repairing your home’s systems and appliances if they break down after you move into the home.
This can mean thousands of dollars out of pocket in the event that you need a new air conditioning system, HVAC system, dishwasher or other appliance. If you cannot pay for the repair or replacement out of pocket, you may need to take out a loan or put the balance on your credit card to bring your home back up to the standards you’re used to.
With a home warranty policy, you can rest with the peace of mind that comes with knowing you have a more affordable option if something in your home breaks down because of normal wear and tear. When you sign onto a home warranty policy, you’ll agree to a list of terms that dictate which home appliances and systems are covered and to what extent.
Many home warranty policies include coverage for a mixture of both systems and appliances, but you can purchase a standalone appliance warranty or system warranty if you prefer. In exchange, you’ll pay a monthly premium to maintain your coverage, similar to a home insurance policy.
If something in your home breaks down because of normal use, file a claim with your home warranty company. What is a claim? In the case of a home protection plan, you submit a service request and a contractor will visit your home, while providing service based on the scope of the warranty package.
Your home warranty provider will review your claim and send a technician to your home to provide a repair if you’re covered. The technician will diagnose your problem and provide you with a solution in exchange for a small service fee laid out in your contract, which could be more complex if the issue sits outside of what is “expected”. Most home warranty companies have service fees between $75 and $125, which is significantly less than you can expect to pay for a home repair or replacement without a warranty.
What is Home Insurance?
A homeowners insurance policy is insurance that compensates you for major damage to any property you own. Like other types of insurance, you pay a monthly premium to maintain your homeowners insurance coverage and file a claim in the event that your property is damaged. Your home insurance coverage will provide you with a reimbursement for repairs so long as the situation that caused the damage is covered under the terms of your policy.
(In the same breath, a homeowners policy and renters insurance work differently. Remember, your landlord needs a homeowners or property policy for repairs. You need renters coverage for your personal belongings and liability.)
Your homeowners insurance policy will include a series of covered perils that you’re protected from while living in your home. If a covered peril causes damage to your property, you may be entitled to a reimbursement from your homeowners insurance company. Some examples of commonly covered perils include fire, electrical storms and burglaries.
Homeowners insurance policies also include coverage for robberies and theft, which may extend to cover you even when your items are stolen from a venue besides your home. For example, if you have a locker at work where you put valuable electronics and the locker is broken into while you’re working, your homeowner’s insurance may provide you with a reimbursement for the stolen things.
Most mortgage lenders require that you maintain some level of homeowners insurance as a condition of being approved for your loan. This means that a homeowners policy is a living expense that is tied to your mortgage payment most of the time. You may need to provide proof of coverage at closing before you move into your new property, or you may need to pay a portion of your insurance costs in escrow before you close.
How Do Home Warranties and Homeowners Insurance Differ?
Home warranty policies and homeowners insurance are not the same things, nor are they interchangeable when you have a breakdown on your property. The following are some of the most dramatic ways that homeowners insurance and home warranties vary.
- Requirement by mortgage companies: Most mortgage lenders require that you provide proof of a valid homeowners insurance policy as a condition of being approved for a home loan. This means you need to get a home insurance quote when you choose a home on which you would like to make an offer. While some home sellers elect to offer home warranty coverage to entice buyers, you are not required to buy a home warranty policy to get a mortgage.
- Covered circumstances: To use your home warranty policy, your home component that needs a fix must have been damaged because of normal wear and tear. If a specific incident caused damage to your home component (for example, a kitchen fire) damage is usually covered under your homeowners insurance policy. The homeowners policy can also offer property damage and liability coverage,
- Your percentage payment: When you sign onto a homeowners insurance policy, your plan will include information on your plan deductible. Your deductible is the amount of money you must pay toward your home restoration costs before your homeowners insurance kicks in and begins providing reimbursements. A home warranty plan often charges a service fee to cover the repair cost incurred.
For example, if you have a homeowner’s insurance policy with a $500 deductible and you incur $2,000 worth of damage, you would be responsible for paying $500 of this $2,000 balance. Your home insurance provider would then cover the remaining $1,500 portion of the bill up to your coverage limit. You do not need to pay your deductible more than one time a year; if you must file another claim and you’ve already paid your deductible, your insurance will begin covering bills immediately with no additional payment from you.
Though some home warranty companies refer to their service fee as a deductible, these fees are not true deductibles because they are due every time you file a claim. Unlike a homeowners insurance policy, you do not “meet” your home warranty service fee — if you file 10 claims with your home warranty, you’ll pay your service fee 10 times. This makes it especially important to choose a home warranty option with an affordable service fee that doesn’t excessively reduce the usefulness of the plan.
Do You Need Both Home Insurance and a Home Warranty?
While you do need a homeowners insurance policy to buy a home in many circumstances, mortgage companies do not require you to have a home warranty. However, buying both policies can be a good idea if you’re looking for a more complete range of home protections. Home warranty policies were designed to fill in some of the holes left in your home insurance policy, which can be beneficial if you’d have trouble covering the cost of a sudden home breakdown.
Home Warranty and Home Insurance Exclusions
Your home insurance company or home warranty provider will include exclusions in the contract or policy. You need to look through the policy or contract because common exclusions include:
- Appliance replacement
- Earthquake or landslide damage
As exclusions are unique to each plan, you may need to ask what should be done to purchase ALL the coverage you need. What does this mean? You may need to purchase a premium home warranty, flood insurance, earthquake insurance, etc.
Compare Home Warranty Policies
If you think that a home warranty might be right for your needs, you have plenty of options when it comes to selecting a policy. Companies like Choice Home Warranty, America’s First Home Club and Select Home Warranty provide policies for property owners across the country. Many policy providers offer multiple coverage options, and inclusions and coverage limits vary by individual provider. This makes it especially important to compare multiple companies and get more than one quote before investing in coverage.
Benzinga offers insights and reviews on the following home warranty service providers. Consider continuing your search for the best home warranty policy using a few of the links listed in the table below.
- securely through Choice Home Warranty's websiteBest For:A la carte protectionRating:
- securely through Select Home Warranty's websiteBest For:Appliance and Home WarrantiesRating:
- securely through Home Warranty of America's websiteBest For:Home Component RepairsRating:
Frequently Asked Questions
Are insurance and a warranty the same?
No, insurance and a warranty are not the same. A home warranty policy is a type of protection that provides you with a more affordable repair or replacement when your home’s major components break down. A homeowners insurance policy compensates you for damage done to the structure of your home as well as your home components when the damage is caused by a covered peril.
What is the main purpose of a home warranty?
The main purpose of a home warranty is to help you get more affordable home system and appliance repairs and replacements in the event that something breaks down because of normal wear and tear. Unlike a homeowners insurance policy, home warranties cover you if your home’s systems or appliances break down because of regular use and not a traumatic event like a fire or electrical strike.
Does everyone need a home warranty?
A home warranty is a good option for landlords, new buyers, home sellers and real estate pros who want to support their clients.