People sometimes use home warranty and home insurance concepts interchangeably. However, the terminologies are dissimilar and could affect accessing a mortgage from a lender. Home insurance is one of the mandatory requirements for many mortgage financing institutions, but a warranty is optional.
Home insurance offers financial protection in case of a home accident or disaster. The insurance covers various personal insurance protection, including home losses, loss of the homeowner’s possessions, and loss of use.
On the other hand, a home warranty encompasses the repairs or replacement of major appliances or systems in a house. But there are more significant differences between home warranty and home insurance.
The below factors help you to delineate between a home warranty and home insurance.
What is Home Insurance?
Home insurance, otherwise known as homeowners insurance policies, is a coverage that includes a form of home accident, including fire outbreaks, theft, storms, and natural disasters.
It focuses on four main aspects – home interior, exterior, personal property in the event of theft, damage, or loss, and general liability to the homeowner.
Typically, people get home insurance to protect themselves against accidental and unforeseen events. Your house and all items in it may be perfectly working, only for a catastrophe to send everything down the drain.
With insurance, you receive compensation to replace everything you lost. Mortgage financing companies make insurance mandatory to protect the borrower from defaulting on repayments.
Taking up a mortgage means a substantial investment by the homeowner, and any financial disruption is likely to affect their ability for prompt repayments.
With home insurance, the financier and the homeowner worry less about defaulting due to home-related emergencies.
What is a Home Warranty?
A home warranty protects your budget when appliances and systems become faulty from regular use. Unlike home insurance, the damage does not have to be accidental to get coverage. The warranty acts like a quality assurance in which the seller guarantees the buyer of well-performing implements in the house for a particular period.
Warranties typically cover appliances to protect users from loss of use.
A home warranty is not a mandatory requirement when accessing a mortgage but needful to protect yourself from the risk of malfunctioning implements. You do not want to find yourself replacing your home’s major systems soon after purchasing them.
Unlike insurance, the warranties do not last forever, and you should check with your provider on the duration. You can learn more about HSA home warranty to avoid any surprises.
Warranties are transferable from one party to another, and you can inherit from a previous homeowner/developer. You can also choose to buy your cover based on the importance you place on your home implements.
Many plans cover a list of items in one package, and you can pick what suits your house best.
The Main Differences Between Home Warranty and Home Insurance
Knowing the distinguishing characteristics between home warranty and home insurance will help you make informed choices between the two services. Coverage and cost prominently differ between the two home risk protection covers.
1. Coverage
Home warranty and insurance differ in coverage. The scope of coverage can be on types of appliances or duration. Depending on providers, a home warranty may cover several items.
A suite of home appliances & built-in systems, including microwaves, oven ranges, dishwashers, air-conditioning systems, water heaters, etc., are coverable. Homeowner insurance covers rebuilding costs, fixing damaged items costs, etc.
Warranties usually come into force when purchased by the first buyer and last for a predetermined period. When taking over a cover from a previous owner, it is critical to check if it is still in force.
In case of expiry, you must buy one to enjoy the benefits. For specific items, you can only buy a warranty within a period prescribed by the manufacturer.
For insurance, you can purchase a cover for as long as you need the risk protection. You keep renewing the insurance cover and enjoy the benefits for the lifetime of the items.
2. Cost
The location, home rebuilding cost, size, the value of personal belongings, and home condition, among others, determine the average home insurance cost. Home warranty cost is dependent on your choice of plan residence.
Therefore, you have more control over the home warranty cost than the home insurance.
If you have a mortgage, you will likely pay a minimum insurance cost based on the property value. The warranty is not mandatory, so you select what you want to cover based on the value you attach to the home appliances.
With the cover, you can opt to modify the home appliances to fit your budget and obtain a requisite cover.
Know the Difference
Discerning the features and differences between home warranty and home insurance enables you to make the right choices for protecting your home and its contents. The two risk protection services can complement each other, and you determine how to apportion costs between them.
The bottom line is to avoid unexpected costs that take a toll on your finances as a homeowner.
