Home Insurance vs. Home Warranty: Key Differences Explained

Owning your own home is a dream come true. However, once you acquire one, you find yourself in a new world filled with new challenges and questions — questions like: “What is really covered under my home insurance?”

Home insurance, by and large, is there to protect you, your home, and your belongings in the event of an unforeseen disaster like a fire or a flood. It can also protect you from liability if an accident on your property results in injury. Insurance will cover the structure of your home: the roof, the foundation, the walls, et cetera. If, for example, a tree falls on your house and causes damage to your roof, home insurance comes in clutch to replace the damaged roof. If a fire ravages your living room, or if you have a break-in and your valuables are stolen, your home insurance policy likely covers replacements.

Now, most mortgage lenders will typically require borrowers to purchase a home insurance policy.  Therefore, the costs vary, depending on factors like age of the home, building materials used, homeowners’ credit score or marital status, and more, but you’ll have an annual premium to pay in exchange for coverage.

Home warranty, on the other hand, is usually optional. Where home insurance pays for replacement of personal belongings in the home, a warranty will help pay for repairs to home systems like HVAC, pipes, furnaces, and other appliances. Rather than a deductible, you’ll pay a yearly service fee, and your contract will have an annual claim limit. This refers to the maximum amount that you can use for services each year. The limit will depend on the contract and the warranty.

Let’s talk about the key difference of Home Insurance vs. Home Warranty.

Moreover, home insurance does not cover standard wear and tear for aging appliances or home systems. That’s what your home warranty is for! If you’ve moved into a Victorian home, for instance, and the pipe system leaks simply because it is old, a home warranty provides assistance in paying for a plumber by allowing you to play a flat rate for service calls. Home insurance wouldn’t cover this because gradual damage from aging pipes is not considered an unforeseen circumstance. Opting for the warranty is a smart decision that could save you a fortune – a plumber will charge their hourly rate, plus materials and labor, and all those costs add up quick!

1. Replacement of aging home systems
2. Gradual damage
3. Wear and tear
4. Servicing appliances
5. Plumbing
6. Sump pumps
7. Interior gas, water, and drain lines

(Note that this is in no way comprehensive or complete – each insurance policy and home warranty is different, and in every situation there are nuances that affect potential coverage.)

In conclusion, these terms can be complicated and overwhelming to the extent that often, they are easily interchanged. Thus, it is recommended to always consult your trusted local insurance agent for home insurance coverage.