The Differences Between a Home Warranty and Home Insurance

Whether you own a home or are about to become a first-time homeowner, you may be wondering about the differences between a home warranty and home insurance. Both provide important protections, but there are real differences between them.

Home Insurance

Homeowner’s insurance protects both the home and the homeowner — as well as the lender — from financial loss in case of an unforeseen event like a fire, flood, hurricane, etc. Accidental damages are also covered — for example, if your neighbor is cutting limbs from his tree and one of them falls on your roof and punches a hole in it.

Homeowner’s insurance covers:

• The principal dwelling and any outbuildings
• Personal property (furniture, clothing, etc.)
• Liability for any injuries that occur on your property
• Living expenses if you are displaced by an accident or natural disaster

Most lenders will not issue a mortgage without proof of homeowner’s insurance, so if you have borrowed money to buy your house, homeowner’s insurance is generally mandatory. Homeowner’s insurance typically renews annually and is not transferrable to a new owner of the home.

Home Warranty

A home warranty covers the cost to repair or replace appliances or systems in your home. For example, a home warranty will cover basic household appliances like a refrigerator, stove, washer/dryer, dishwasher, etc., as well as your plumbing, HVAC and electrical systems. It can also cover things outside the home, such as a pool, spa or barbeque.

Home warranties are a “nice to have,” not a “have to have” like homeowner’s insurance. A home warranty is usually good for one year and can transfer with the sale of a home.