Warranty and insurance are two terms that can sound quite a bit alike in their purpose and function, but that’s not necessarily the case. A home warranty and home insurance are two concepts, both offering a level of protection and peace of mind for homeowners, but doing so in different ways.
What is a Home Warranty?
A home warranty is somewhat like a form of insurance for your home, but it only covers certain systems or components of a home rather than the entire home. If you have appliances like washers, dryers, or a range, a home warranty might cover the service and repair of these if they malfunction. A home warranty might cover the replacement of certain appliances and systems as well, such as a hot water heater.
Exactly what a home warranty covers depends on the plan itself, because they are all a bit different.
A home warranty is different from the warranty for an individual appliance or system because manufacturers’ warranties are only for a set period of time. A home warranty offers homeowners protection no matter how old the system or appliance is.
What Is Home Insurance?
Home insurance is also called homeowners insurance and it covers the actual home and certain situations that can go wrong. A typical homeowner’s insurance policy will cover fire, theft, personal injury, and weather-related problems. Homeowners’ insurance coverage usually provides protection when uncommon disasters lead to the need for high-cost repairs.
Homeowners or home insurance isn’t something extra like a warranty—it’s something you need to have. Most mortgage lenders require that when you borrow, you have insurance coverage for the purchase price of your home. Often you can’t complete a transaction with your mortgage lender without showing proof of home insurance.
Homeowners’ insurance might be used to cover damage to both the interior or exterior of your home. You could use coverage to make repairs or completely rebuild your home.
There are three levels of homeowners’ insurance coverage as well. There is actual cash value, which covers the house plus the value of your belongings, with a deduction for depreciation. Another option is guaranteed replacement cost/value, which is a comprehensive type of homeowner’s insurance that covers whatever it costs to do repairs or rebuild even if it goes beyond the limits of the policy. Replacement cost is actual cash value coverage, without accounting for depreciation.
How Do Home Warranties and Insurance Compare?
There are quite a few ways home warranties and insurance are different from one another. Some comparison points for the two include:
- Home insurance is a necessity while a warranty isn’t
- Home warranties are not intended to provide disaster protection—instead, they are meant to provide protection in terms of general wear and tear
- Home warranties can often be transferred from one owner to another, unlike homeowners insurance
While both warranties and homeowners insurance provide a level of protection, that’s where the similarities on the two end. These are not mutually exclusive either, and they don’t have much if any overlap in the protection they provide, so a homeowner can opt to have both.