Homeowners insurance and home warranties both provide financial protection for home-related repairs and replacements, but coverage details differ significantly.
Generally, home insurance is a contract between you and the insurance company. It will help pay to repair or rebuild the structure of your home or replace personal property after a covered event, like a fire. A home warranty is a contract between you and a warranty provider. It can help you cover the cost to repair or replace major home systems and appliances if they break due to normal wear and tear.
What does home insurance cover?
Homeowners insurance can help you pay to repair or replace covered structures and personal property up to your policy limits and minus any deductibles. You can only file a home insurance claim if a covered peril, such as hail, wind, theft, vandalism, fire, or falling objects, caused the damage.
Generally, standard homeowners insurance policies cover the following:
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Your dwelling. Dwelling insurance covers the physical structure of your home, built-in appliances, and attached structures, like a garage or porch.
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Other structures on your property. This part of a standard homeowners policy will help you pay for damage to detached structures, such as a separate garage or shed.
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Your belongings. Personal property insurance covers your belongings, like furniture, clothing, art, and appliances.
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Your liability. Personal liability insurance covers third-party claims of bodily injury and property damage. It can cover your legal defense and any resulting settlements or judgments if the incident results in a lawsuit.
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Medical bills for injured guests. Medical payments or personal insurance covers minor medical expenses, such as those up to $5,000, for guests injured on your property, regardless of whether you are at fault.
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Additional living expenses (ALE). Loss of use insurance covers temporary living costs, such as hotel stays, laundry services, or meals, if your home becomes uninhabitable due to a covered loss.
Many home insurance companies offer optional add-ons, or endorsements, to enhance coverage.
For instance, a standard policy generally excluded coverage for damage caused by a backed-up drain or sump pump. However, you can often add a water backup endorsement to your policy, extending coverage to that specific peril.
What does a home warranty cover?
A home warranty is a service contract that covers the biggest systems in your home. Examples of systems typically covered by a home warranty include:
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HVAC
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Electrical systems
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Plumbing
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Ductwork
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Whole-house fans
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Water heaters
A home warranty may also cover the following major appliances:
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Refrigerators
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Stoves
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Ranges/cooktops
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Dishwashers
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Garbage disposals
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Washing machines
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Dryers
If a home system or major appliance covered by your home warranty needs to be repaired or replaced, you can file a claim with the warranty company. The warranty company will typically send a technician to diagnose the issue and determine whether the item should be fixed or replaced.
Home warranties usually cover the cost of repairs or replacements up to your policy limits, or caps, and minus any deductible or service fees. However, coverage specifics vary by company and product.
Most home warranty companies sell multiple plans with different coverage tiers. For example, a basic plan might only cover appliances, whereas a more expensive plan may cover both appliances and systems.
What isn’t covered by a home warranty?
A home warranty doesn’t cover everything. Most plans have exclusions, so reading the fine print is essential. The following are often excluded from coverage:
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Issues caused by lack of maintenance
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Problems that existed before you purchased the warranty
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Routine system and appliance maintenance
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Structural damage to foundations, roofs, and walls
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Cosmetic damage
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Damage caused by rot, mold, or mildew
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Damage to sewer pipes or water lines
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Damage from natural disasters
Who should buy homeowners insurance?
Anyone who owns a home should purchase homeowners insurance. After a covered incident, a homeowners insurance policy can help you pay to rebuild, repair, or replace your property and personal belongings. Further, a standard policy can also pay for third-party liability claims, including your legal representation and settlements if sued, should you or a household member be found at fault for a covered incident.
Without home insurance, you’ll likely need to pay out of pocket to rebuild your home or replace your belongings.
No laws require you to carry home insurance, but if you have a mortgage, your lender will likely require you to show proof of insurance until you pay off the loan.
Who should buy a home warranty?
A home warranty may be worth considering if you want help covering unexpected (potentially expensive) home system and appliance repairs. You may want to consider a home warranty if:
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You don’t have emergency funds to cover appliance or system repairs
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You own an older home
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Prefer the convenience of working with warranty company technicians and repair experts
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Want coverage for recently installed costly systems or appliances
Note that each home warranty company sets its coverage limits and exclusions, which often vary by product. Always review contract terms and coverages before you purchase the warranty to ensure your systems and appliances are covered.
Do you need both a home warranty and homeowners insurance?
If you have a mortgage, you probably need home insurance, but even if you don’t, purchasing a home insurance policy is usually wise. You typically don’t need a home warranty, though there may be some benefits to having one.
After a covered event, a home insurance policy can be an invaluable financial tool, helping you restore your property to its previous state without incurring significant out-of-pocket expenses.
A homeowner's policy does not cover replacing or repairing items due to age or normal wear and tear, but a home warranty often does. If you want protection against those expenses, a home warranty can complement your home insurance policy.
Are homeowners required to buy these coverages?
There are no laws that require homeowners to carry home insurance. However, your lender will likely require you to show proof of home insurance if you have a mortgage.
Though primarily designed to protect the homeowner after a covered loss, home insurance policies also help reduce the financial risk lenders take on when issuing a mortgage for a property. Once the mortgage is paid off, homeowners can drop coverage. However, maintaining a home insurance policy is generally a good idea, even if it’s not required.