Home Warranty Vs Home Insurance: What’s The Big Difference?
By: Ian Golightly MBA, Realtor
Table Of Contents:
- 1. Introduction
- 2. The Differentiation From Home Insurance
- 3. Is A Home Warranty Just Another Added Nusiance Cost?
If you are buying a home or selling a home, you will come across the term ‘home warranty’ at some point. If you are a first-time homebuyer, learning about a home warranty may be overwhelming with all the fluff ‘coverage’ and small print jargon the contract has. What a home warranty focuses on, is the coverage for the parts of your home versus your home structure (home insurance). Essentially it is a service contract that covers the wear and tear of things in a home.
For example, everyday appliances like a hot water heater may start to malfunction. If you are renting, then usually there aren’t any issues because the responsibility should fall on the landlord when things begin to break like a water heater or a washing machine. However, if you are a homeowner, it is typical to have multiple high price appliances, and your at risk of a higher chance for one of those things to break at some point in time. If your HVAC system goes out, having a home warranty could limit your financial losses if you had to replace it or do a major repair on the core unit.
A home Warranty is typically structured like an insurance plan. Every month you’ll be charged a fee unless you have a yearly contract, a service fee is billed per technician going to your residence, and then a deductible is paid. Depending on the contract, there may be a claim limit, so you’ll want to read over the fine print before signing away.
The Differentiation From Home Insurance:
The general main difference is that home insurance pays for the home itself. For most insurance companies, the four primary coverages to home insurance are personal injury, theft, fire, and weather. Because the situations are unlikely, you still want peace of mind for these high-cost problems if they were to ever occur. It is a no-brainer to have home insurance in Florida for hurricanes or even have home insurance in California for wildfires. These are the very reasons if you were to obtain a home mortgage from a financial institution, they will require you to have some type of home insurance coverage before the sale closes.
Is A Home Warranty Just Another Added Nuisance Cost?
As I mentioned recently, a home warranty is not mandatory, like home insurance by a mortgage company, but it will give you peace of mind when your high ticket items break. Having a home warranty may save you money in the future, but it boils down to your circumstances. Just because your friends never had any issues when they opted out of a home warranty, it does not mean that your situation will be the same as theirs.
The keyword is ‘insurance,’ and we buy insurance to ensure that we have coverage in the worst-case scenario. Believe it or not, the average American has less than $5000 in their savings in today’s society. If by any chance, you have an air conditioning unit that goes completely bad and then you have pipe issues throughout the whole house, you may be seeing a bill in the $10,000 range in the span of a few days. Granted, this is an infrequent scenario. However, with the millions of homeowners in the United States, there has to be a small probability that it has happened to someone before.
Before choosing a home warranty company, you need to make sure that they are the right fit for you and understand their contract. Please don’t get caught up in their brochure’s lovely presentation to make yourself believe they are the right one for you. Trust me, I’ve made that wrong decision before, and the customer service and service techs were very subpar.
If you need help finding an agent that specializes in home insurance or home warranties, please contact us.