Concerning Coverage: Home Warranty vs. Home Insurance

Your home is a huge investment. Protect it.

When it comes to covering your home inside and out, you’ve got options. One option, often required by mortgage lenders like us, is home insurance. Your other option, for a bit of bonus coverage, is a home warranty program. Let’s talk through the differences and see how they stack up against one another, shall we? 

Home Warranty vs. Home Insurance

Home warranty programs and home insurance coverage are essentially two sides of the same coin, each offering varying levels of protection against everyday incidents that might harm your home, your belongings, your family, and even other people. 

Like auto insurance, home insurance is often required by your lender or mortgage servicer. While you can shop around for different rates and levels of coverage, many companies ultimately offer similar benefits—not just for your peace of mind, but to ensure their investment is protected. After all, the business of mortgage lending doesn’t come without risk. You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency. 

Home warranties, however, are not required by lenders. They often cover things that aren’t included by home insurance, including specific repairs and replacements for broken down appliances. There are a lot of home warranty companies out there, all with their own reviews that you’ll absolutely want to read up on before selecting a plan . . . if you decide to select one at all. Remember, they’re not required, but they may be useful if you’re short on cash after purchasing, or if you purchase a home that comes with dated appliances and systems. 

Introduction to home insurance

Home insurance policies protect your home from a list of covered perils and damages. They may also offer liability protection in case someone is hurt on your property or if you cause damage to someone else’s property. Examples could include if a tree branch falls from your yard onto a neighbor’s roof, or if your friend’s kid throws a baseball over your fence and through your neighbor’s window.

Home insurance also protects dwellings (that’s your home’s physical structure and the contents within), detached structures like fences, sheds, and garages, and personal property. That last bit could include your computers, televisions, jewelry pieces, and clothing. Additionally, home insurance protects “loss of use,” which provides financial support in the event that your home becomes unlivable for any period of time, and medical payments for yourself and others. 

Here are some other things insurance might protect you from:

Because home insurance is part of the home buying process, its premium payments can be included as part of your mortgage payment if your lender includes an escrow account (something that’s also often required for FHA loans). In this sense, it becomes part of your PITI, or “Principal, Interest, Taxes, Insurance.”

What’s the cost?

Insurance premiums vary from carrier to carrier, so cost can vary. Oftentimes, it’ll depend on several factors, including:

  • Where you live
  • Your home’s value
  • Dwelling size
  • Structure age
  • Coverage limits and deductibles
  • Home features
  • Credit score
  • Pets

Pets? Yep, even pets. If you’re a dog lover (aren’t we all?), your insurance carrier may increase your premiums for owning a breed they deem riskier than others. Likewise, other “risky” elements—such as swimming pools—may increase your premiums as well. 

What is a home warranty?

Home warranties differ from home insurance options in that they generally cover specific things, not the broader brush strokes of homeownership. 

Think about it this way: if insurance covers your entire home, warranties cover the individual bits inside—things like appliances, HVAC systems, plumbing and septic systems, roofs, and even swimming pools (at an additional cost, of course). 

Like home insurance, home warranties are paid via premiums. You enroll in a plan and you pay an annual or monthly fee for the ability to submit a claim if something breaks down. If your furnace dies out in the middle of winter, you can file a claim to the warranty company. They work with local partners and will dispatch a business to diagnose and repair the issue, up to a certain covered amount. The “secret” there is that you’ll often be required to pay a “service fee” for that service call. 

Think of it as a deductible, right? Similar to home insurance, you have to pay part of the bill up to a certain amount before insurance kicks in to cover the rest. With a home warranty, you pay a small fee for greater coverage—either a repair or replacement of whatever’s broken. 

Warranties aren’t required, and depending on who you ask, they may not even be necessary. For people without access to a lot of liquid cash for immediate repairs, however, they can be particularly useful, especially for a dated home or aging appliances. 

More coverage, more security.

Ultimately, home insurance and a home warranty are two great ways to protect your investment. Neither is free, and neither will totally protect you from risks, but they’re perfect for people who are looking for a little more peace of mind.

You might be able to pay back your home loan, but home insurance makes sure you and the property itself are protected in case of emergency.

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