The short answer is “yes,” they are completely different, but both are important in protecting your investment. Homeowners insurance protects you against accidents, while a home warranty protects you against malfunctions. Here is a breakdown of how each works to protect you.
In most cases where a homebuyer finances a home purchase, the lender requires that a homeowners insurance policy be in place at all times. It protects the lender in case the house burns down, but, more importantly it protects the homeowners largest asset against a number of costly risks, such as damage by fires, storms and some natural disasters as well as losses due to theft or liabilities.
Homeowners policies are comprised of three different coverages – perils and risks, personal property and personal liabilities. Perils and risks are events or circumstances that can result in damage or loss. Personal property coverage protects all of your property other than the building against damage or theft. Personal liability coverage reimburses the homeowner for any claims made against members of the household as a result of personal injury or property damage.
Although homeowners can choose different levels of coverage, all are bundled into one policy. The cost of a homeowners policy can range from a few hundred to more than a thousand dollars depending on the value of the home and property and the coverage limits. The amount of the deductible can raise or lower the premium. A higher deductible will lower the premium amount, while a lower deductible will increase the premium amount.
A home warranty is not considered insurance and it is not mandatory like homeowners insurance; rather, it is a type of service contract that covers the cost of repair or replacement of appliances and home systems such as your air conditioning and heating and plumbing. Under a home warranty plan, if your washing machine breaks down, the service provider arranges for a repair person to come to your home to assess the problem.
If it requires repair, the provider will pay the repair company directly. You may be required to pay for the cost of the service call, which is somewhat like paying a deductible. If the appliance needs to be replaced, the provider will arrange for a new, similar model to be delivered and installed.
Home warranty contracts are typically based on a 12-month term that must be renewed every year. The annual cost varies between around $300 to $600 depending on the level of coverage, which can be basic or comprehensive.
Although a home warranty is optional, it can be a very smart investment. Appliance repairs or replacements can cost thousands of dollars over time. It’s not uncommon for homeowners to take out an equity loan to pay for a new HVAC system or re-piping. For $50 to $75 a month, you never have to worry about a costly repair or replacement coming at an inopportune time.
Although they serve two very different purposes, the combination of homeowners insurance and a home warranty can provide the ultimate peace-of-mind while you enjoy your new home.
Written By: Richard Best
Writer For: Easy.Credit