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Home Warranty vs. Home Insurance: Pros, Cons, & Differences

modular home

A home warranty and home insurance are two similar forms of protection. They both can cover costs associated with home repair, damage, accidents, and unforeseen events. Despite their similarities, home warranties and home insurance are different.

Generally speaking, a home warranty provides coverage for your home’s internal components in case of use or wear and tear, whereas home insurance covers the integrity of the home and personal property in case of major events like natural disasters and burglary.

For a more comprehensive look at the difference between a home warranty and home insurance, keep reading.

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Overview of Home Warranties

A home warranty functions like insurance, but it is not insurance. Instead, it is a supplemental plan that acts as a home service contract. A home warranty often covers items within your home in case they malfunction or break prematurely from regular use, though the specifics will be determined by your coverage.

Magnifying Glass and a Insurance policy document
Image Credit: Vlad Deep, Pexels

What Home Warranties Cover

The specifics of your home warranty will be determined by the plan you select. Your plan will explicitly outline what is covered and what is not covered. There are some items that are normally covered by most home warranty plans, though.

Home warranties normally cover major appliances and built-in systems.

A few examples of items covered by home warranties include:
  • AC/heating system
  • Dishwasher
  • Ductwork
  • Electrical system
  • Garbage disposal
  • Microwave
  • Plumbing system
  • Stove/oven
  • Washer and dryer
  • Water heater

If these items begin malfunctioning or break prematurely, your home warranty will often cover the repair or replacement.

What Home Warranties Don’t Cover

There are some things that home warranties consistently do not cover. For example, home warranties exclude damage caused by insufficient maintenance or accidental damage, such as damage caused by poor installation and modification. Home warranties do not cover pre-existing conditions either.

One big thing that home warranties do not cover is events or disasters. If items are damaged due to a flood, burglary, vandalism, or any other major event, the home warranty will not cover the repair or replacement.

Your policy may have additional warranties, proving just how important it is to read the fine print about the home warranty use sign.

Homeowners Insurance Policy
Image Credit: Andrey_Popov, Shutterstock

When Home Warranties Are Helpful

Home warranties are helpful if you are just starting out and don’t have big enough savings to front big expenses yet. The home warranty will provide you with a little bit of wiggle room in case major appliances or unit systems go out through no fault of your own.

Pros
  • Great for individuals with minimal coverage
  • Ensure you get your money’s worth on large items
  • Save money when large appliances go out
Cons
  • Does not cover damage caused by negligence
  • Does not cover pre-existing conditions
  • Does not cover major events or accidents

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Overview of Home Insurance:

Home insurance offers financial coverage in the case of a major event, such as burglary, vandalism, or a natural disaster. It specifically covers the structure of your home, additional structures on your property, and loss of property. Some plans will also provide reimbursement if you are required to seek alternative living quarters while your home is being repaired.

What Home Insurance Covers

Home insurance is designed to be there for you whenever major events happen that cause financial repercussions. For example, home insurance covers damage and loss related to many natural disasters, theft, and vandalism. More specifically, it offers coverage whenever the structure of your home and the structure of other buildings on your property are damaged. It also offers coverage whenever your personal property is lost or damaged during the event.

home insurance claim form
Image Credit: emilie zhang, Shutterstock

What Home Insurance Doesn’t Cover

Even though home insurance offers a wide range of coverage, it does not cover everything. Most importantly, home insurance does not cover damage related to wear and tear or your own negligence. Instead, it only covers events that are outside of your control.

Home insurance doesn’t cover all damage caused by accidents either. For example, many home insurance plans do not cover flood damage. If your home is damaged due to flooding, your home insurance may not cover the damage. The same goes for earthquake-related damage.

Once again, it’s critical to read the fine print to learn exactly what your home insurance does and does not cover. Your specific plan may cover more or list more exceptions.

When Home Insurance Is Helpful

Home insurance is helpful for all homeowners because it provides financial protection in the case of an unforeseen event. Home insurance is especially needed in areas with severe weather or crime.

Pros
  • Great for natural disasters and unforeseen incidents
  • Protects home from vandalism and burglary
  • May cover alternative living expenses
Cons
  • Does not cover damage caused by negligence
  • Does not cover pre-existing conditions
  • Does not cover damage caused by regular wear and tear
  • Does not cover all accidents (like floods and earthquakes)

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Home Warranty vs. Home Insurance

Now that we’ve looked at home warranties and home insurance separately, let’s take a minute to talk about the differences and similarities between these plans.

In general, home warranties provide coverage for the gaps that are not covered by home insurance. Whenever you have both plans, you will receive financial assistance for both regular wear and tear and unforeseen events or accidents. If you only have one plan, you will only receive financial coverage for certain situations, though.

Home Warranty Home Insurance
Protects Home systems and appliances Home’s structure, structures on the property, personal property
Covers Regular wear and tear Accidents, natural disasters, burglary, vandalism
Does Not Cover Damages caused by negligence, major events, or pre-existing conditions Damages caused by regular wear and tear, negligence, floods, earthquakes, or pre-existing conditions
Ideal For Those with minimal savings All homeowners

Is Home Warranty or Home Insurance Right for Me?

Because there are notable differences between a home warranty and home insurance, it’s important to select which policy is right for your home and needs.

Generally speaking, all homeowners should invest in home insurance. Home insurance helps to protect your financial state in case the worst happens. Especially if you live in an area prone to crime or natural disasters, home insurance is necessary.

Home warranties are not as necessary, but they can be equally helpful. You should get a home warranty if you want to fill the gaps in your home insurance. More so, get a home warranty if you are afraid that you will not have the savings to deal with a major appliance breakdown when the time comes.

If you live in an area prone to flooding and earthquakes, you will want to look for additional policies too. Check out flood and earthquake policies to add to your home insurance to ensure your home is completely covered.

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Conclusion

Home warranty and home insurance both provide financial coverage in the case something goes wrong in your home. However, they don’t offer the same coverage. A home warranty covers items within your home that break due to regular wear and tear, whereas home insurance provides coverage in the case of severe events that alter the structure of your home or personal property.

All homeowners should get home insurance, but a home warranty is a good idea as well. Consider looking into other policies too, depending on the environment you live in.


Featured Image Credit: vipman, Shutterstock

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