One of the common questions I get from working with my Buyers is a variation of “Is home warranty the same as home insurance?” The short answer is no. They are two completely different products that protect the homeowner-to-be against different risks.
Home insurance, or homeowner’s insurance, is an insurance product that you purchase from an insurance agent or an insurance company. Typical home insurance protects the homeowner against damages to:
- The house, e.g., as a result of fire, lighting, etc.
- Other structures on the property, e.g., storage shed, detached garage, etc.
- Your personal property.
It also offers liability protection in the event that you’re responsible for someone else’s loss and suffering.
You can get your home insurance from companies like AllState, StateFarm, Liberty Mutual, GEICO, USAA, etc.
Home warranty is a product sold by home warranty companies to reduce the financial impact when something in your house breaks down. Most home warranty protects you against the following failures:
- Heating and cooling system
- Water heating system
- Kitchen appliances, e.g., stove, range, oven, microwave, dishwasher, garbage disposal, etc.
- Washer and dryer
- Plumbing issues
- Electrical issues
You typically pay about $500-$800 per year for a home warranty. When you need something fixed, you give the home warranty company a call. If the issue is covered, you usually pay a service fee of $50-100 to have the issue resolved. The home warranty company will do what they can to fix the problem. As the last resort, they will replace the item that cannot be fixed.
You can get your home warranty from companies like HMS, HSA, 2-10, American Home Shield, First American, Old Republic, etc.
The Key Difference
It is important to understand that you always need to have home insurance. Home insurance protects you against significant losses, e.g., the replacement cost of your house, hundreds of thousands of dollars in liability damage, etc. On the other hand, the most expensive issue covered by your home warranty is the heating and cooling system which is typically $10,000 or less. So, it is not as critical to have a home warranty. Depending on the condition of covered items, you may opt to not purchase a home warranty.