Home Warranty vs. Homeowners Insurance: What's the Difference?

After buying a house, two forms of coverage can protect you from the unexpected—homeowners insurance, which saves you against vandalism, theft, and natural disasters. And a home warranty plan, which pays for the replacement of certain things in your home if they fail. When you have a mortgage, you must have homeowners insurance, and it is an essential kind of security for every homeowner. It enables you to rebuild if a storm or fire destroys your most valuable asset. A home warranty isn't required, but it comes in handy and saves money when things around the house start to fail.

Why Do You Need Homeowners Insurance?

Your mortgage lender or bank has a vested financial interest in how well your house is maintained. Bad weather, a break-in, or a large pipe leak can all harm the quality of your home, its value, and, as a result, the bank's investment in your property. The bank compels you to purchase a minimum amount of homeowners insurance coverage when you mortgage your home to safeguard its interests. The "hazard" coverage is the part of your homeowners' insurance policy that your lender is concerned about. This form of insurance coverage is frequently referred to as "homeowners" or "hazard" insurance.

Your lender will regularly review your homeowners' insurance coverage to ensure it is current and adequate. Your lender has the power to not only compel you to obtain homeowners insurance but also to acquire one on your behalf if you let yours lapse. The lender's failed attempts to get you to pay your insurance on time often force you to buy homeowners insurance. If you are forced to get insurance, you may be required to make an additional monthly payment to cover the cost of the new policy.

Although mortgage lenders make a compelling case for mandating homeowners insurance, having a mortgage isn't the only reason to get it. Even if you own your home outright, you may not have the finances – or may prefer not to – to repair it or cover any additional losses resulting from a catastrophic catastrophe. If a fire destroyed your home, it would cost several tens of thousands of dollars to rebuild it from the ground up. In addition, your other things would need to be replaced, which is covered by homeowners insurance. A lender may require you to insure your home for its replacement cost, which is the expense of rebuilding it. Even if your property isn't mortgaged, this is a solid rule to follow.

Liability insurance is a sometimes ignored feature of a home's policy. If someone is injured on your property and sues you, liability coverage pays your legal fees and the cost of a settlement. It can also cover you if you're sued for something that happens away from your home.

Why Do You Need a Home Warranty?

You might not need a house warranty if you're particularly handy or have a tried-and-true list of contractors who charge only a small fixed price every time. Buying a house warranty every year, on the other hand, makes a lot of sense. Every time it pays to fix something in your house, a home warranty charges an annual fee plus a modest service or "trade call" fee.

One of the most significant advantages of having a home warranty is money saved. A base package costs $300, with enhanced options costing $600. A trade call cost might be anything from $40 to $70. A home warranty plan is often less expensive than replacing a large home appliance such as a stove, dishwasher, refrigerator, washer, or dryer on an annual basis. All of your appliances may break down in the same year and be fixed or replaced for less than the cost of buying a single new item if you have a home warranty plan.

A house warranty package might also help you save time. Your home warranty company chooses local contractors who have already been vetted. The home warranty provider is in charge of dispatching them to your residence and organizing the repair or replacement of your broken component. The plumber, electrician, roofer, or technician merely assesses the situation and informs the house warranty organization. After that, the corporation decides whether to repair or replace the broken item. You may purchase a home warranty when you buy a house, but you can also do it later. If you choose, you can renew your home warranty plan every year.

Many homebuyers may request that the seller pays for a one-year home warranty coverage on closing escrow. If a seller or buyer refuses to pay for the plan, some real estate agents may offer to pay for it. This gives an extra layer of safety and peace of mind, especially for first-time purchasers who don't know what to expect in terms of the condition of their new property.

When selling a property, a seller can also purchase a home warranty plan if they don't already have one. A seller's home warranty plan might cover repairs needed while the house is on the market or in escrow. This coverage may be appealing to a seller who wishes to convince a buyer that a house is in good condition and provide a warranty for any repairs performed on the home while it is on the market.

Comparison of Prices

The price of homeowners insurance or a home warranty plan varies depending on:

• State
• Type of property
• Size, which is commonly expressed in square footage
• A company that provides insurance or warranties
• Coverage

House warranty policies that are upgraded or "enhanced" can cost anywhere from $100 to $300 more than normal home warranties. While a standard house warranty normally covers built-in appliances such as a stove, dishwasher, and microwave, other appliances such as a refrigerator, washer, and dryer are considered upgrades and add to the cost. Plumbing, water heater, furnace, electrical and mechanical components, ceiling, and exhaust fans are normally included in a basic plan. Pool or spa coverage, roof repairs, air conditioners, and septic systems, on the other hand, are often additions that cost more.

At the time of publishing, the national average cost of a homeowners insurance premium for a $200,000 house with a $1,000 deductible and $100,000 in liability coverage was $1,228. The states with the highest insurance prices are prone to hurricanes, hail storms, tornadoes, and earthquakes. According to one Insurance.com poll, Florida and Louisiana were the most expensive, while Hawaii and Vermont were the least expensive. Other factors that have no bearing on home warranty programs but do affect homeowners insurance prices include:

• Home's age
• Materials for construction
• System of security
• Rates of crime in the area
• A credit score of a homeowner
• History of claims

A typical homeowner's insurance policy does not cover earthquakes or even flooding caused by bad weather. You can get earthquake and flood insurance as a separate policy or "rider." This add-on can be significant depending on where you live.