What is the Difference Between Home Insurance and a Home Warranty?

If you are a new home owner, you are going to be inundated with terminology and requirements in order to get your affairs in order. One of the most common questions among new home owners is what is the difference between home insurance and a home warranty? You have come to the right place to get your answer.


Basics of a Home Warranty  

A home warranty can vary greatly in what it covers, how long the coverage lasts, restrictions to coverage and how much you must pay. If you purchase a home, in many instances, there may be a built-in warranty that covers problems with appliances, HVAC system and the septic system. Some may cover more, some may cover less. The central purpose of a home warranty is to cover against faulty items purchased with the home. It is limited in the items it does cover, which is mainly household appliances and systems.  


How a Home Warranty Provides Coverage

Home warranties can work in a variety of ways. You may get the warranty for say 6 months for free when you purchase the home and if you want to continue the home warranty you pay a small monthly or yearly fee that usually amounts to about $200 to $500 per year. If you don’t want the warranty, you don’t have to purchase it. If you do purchase a warranty and something covered by the warranty breaks down due to no fault of your own, you usually only pay a small, flat service fee to have it fixed. This is similar to a co-pay in medical insurance terms. For instance, you have a home warranty that states you have to only pay a $75 service fee for qualified repairs. If your water heater breaks down and the repairs cost $500, you only have to pay $75.


Basics of Home Insurance

Home insurance is a very different animal than a home warranty. First of all, homeowners insurance will be required if you have a mortgage. This is to protect the lender in case of severe damage to the home. A home insurance policy provides much more extensive protection. The items covered and the perils from which they are protected against are much more extensive. As an example of the difference, if your water heater breaks down and needs to be repaired, it is the home warranty. If something sparks in the electrical unit of the heater and starts a fire that burns up the unit and it storage space, then your home insurance is where you look for coverage.  


Coverage Areas of Home Insurance

While a homeowners insurance policy will cover damages to your HVAC and appliances, it also provides coverage for the entire dwelling and all the contents within. This is not covered by a home warranty. Your home insurance policy will also cover the home for loss of use, liability and cover other structures on the property. If you live in a flood prone area, flood insurance can be added to your policy. Home insurance gives you more but will cost more.


Shopping Around for Home Insurance

Home insurance doesn’t have to be that expensive. You can get what you need and not have to pay an arm and a leg if you shop around and make smart purchase decisions. The same goes for buying a home warranty. In fact, for the best protection, combine a quality home warranty with solid home insurance. For your homeowners insurance, online rate quotes can be found in many reliable places to provide you with the rates of the best homeowners insurance companies in your area.

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