Home Warranty v. Home Insurance: What’s the Difference?

Every homeowner wants to ensure that they’re covered should disaster strike. But what kind of coverage is best suited to protect you financially? Many homeowners turn to home insurance and home warranties to help them bridge the gap in case something big and unfortunate should happen – like a house fire or having your entire furnace unit give out. However, the two kinds of policies cover dramatically different types of incidents. Many people stick exclusively with home insurance. They do this because they’re operating under the assumption that it will cover them in all cases – which isn’t necessarily true. Let’s take a closer look at how both home warranties and home insurance policies are structured, and what they each generally cover.

What do these policies cover?

Because it’s the most popular kind of home coverage, let’s start by taking a look at home insurance. Policy holders pay home insurance premiums monthly in exchange for coverage. Home insurance generally covers damage to your home or your belongings caused by fire, theft, windstorms, hail, lighting, and vandalism. Additionally, home insurance offers you liability coverage should someone get injured on your property. Home insurance policies have several other benefits. For example, they often offer “loss of use” coverage. This means that should you be unable toyou’re your home for any length of time as a result of a covered cause (i.e. a fire), your insurance will help to pay for temporary housing until you can reenter a permanent living space. It can also cover additional outbuildings you have on your property, such as a shed or barn, and reimburses any loss of property should something happen to your home that’s covered by your policy.

However, home insurance doesn’t cover everything. For example, if we’re looking at natural events that could cause damage to your home and belongings, home insurance usually doesn’t cover flooding or earthquake damage. It also doesn’t cover aging appliances, traditional wear and tear, or the repair and replacement costs you might face should something larger and expensive happen – like a crack in your foundation. So, while home insurance is often the first thing that homeowners think of when they look to protect themselves against dramatic financial losses, there are many situations where home insurance won’t fully protect you.

Another option for coverage are home warranties, offered by companies all across the USA, a covered extensively by review sites. Policy holders pay low monthly premiums in exchange for a one-time service fee should something break, rather than any repair or replacement costs that could run a several thousand-dollar bill. Home warranties, while not as extensive in their coverage as home insurance, provide an inexpensive option for homeowners to bridge the gap and protect themselves against a few things that insurance doesn’t cover.

For example, most home warranty policies can be structured to cover the cost when you need to repair or replace expensive appliances or systems in your home. These policies are more relaxed and cover aging appliances that aren’t affected by a natural disaster, vandalism, or theft. Rather, they focus on appliances and systems that are prone to breaking with time – like your furnace, A/C unit, washers and dryers, or refrigerators. Home warranties aren’t always a perfect option, and it’s important to carefully read what exactly is covered with each individual policy. But, for extra protection at a low monthly rate, home warranties can’t be beat.

What does the regulation look like?

Home insurance policies are carefully regulated by each state, and insurance providers have to be registered in the state where they provide insurance and they must qualify based on the state’s specific rules. In general, this means that coverage is closely monitored and that you’ll be getting exactly what you pay for.

However, home warranty policies are much less regulated. This isn’t always the case, as some states do have regulations and rules that home warranty companies must abide by. However, there are scam artists out there who take advantage of the general lack of regulation. Good home warranty companies are out there, but it is important to read up on the company you’re considering working with and be aware of the specifics of the policy you’re signing.

What about the costs?

Without a doubt, home insurance is much more expensive than home warranty coverage. Insurance coverage pricing also varies depending on what state you live in, the size and age of your house, or the overall value of your property. On average, it can range from $50-200/month. That’s a huge price range to consider! However, home warranties are generally low cost, on average they cap out at $50/month for a well-rounded policy. In many cases, it might be in your best interest to consider both a home owner’s insurance policy as well as a home warranty. Reducing the gaps in your coverage is undoubtedly beneficial, and can help set you up for success should something unexpected happen in your future as a homeowner.