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

Posted by Emma Johnson on 5/17/17 9:30 AM

Topics: Home Buying

While buying a home holds lots of excitement for new opportunities, it also comes with a plethora of new responsibilities. It will likely be the biggest purchase you make in your lifetime, and protecting your investment is critical! When you're buying a home, purchasing a homeowner’s insurance policy and a home warranty are both smart ideas that can help to offer you protection as a new homeowner, but understanding the difference between the two is important because they’re quite different.

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Home insurance is typically mandatory, and a lender will usually not issue a mortgage before an insurance policy is obtained. Home insurance covers any damage to your home due to theft, storms, fire, natural disasters, general liability and the like, and it works like any other type of insurance coverage you may have. The policy is renewed yearly, and all policies have a deductible that you’re responsible for paying and the insurance company will take care of additional costs. Home insurance typically costs the homeowner between $300-$1,000/year depending on how high or low your deductible is. 

A home warranty, on the other hand, is not mandatory but can provide a home owner with peace of mind. It is a service contract that helps cover the repair or replacement of different home appliances within your home, like the furnace, plumbing, kitchen appliances, a/c unit, electrical, etc. Home warranties are often offered by the seller in a sales transaction to help sweeten the deal and increase marketability. They can also be purchased yourself, and are an especially good idea if you have an older home, or a home that has outdated equipment. A home warranty company will have a list of approved service providers who will come to your home to repair or replace the necessary equipment for a reduced fee to you, often saving you hundreds, or even thousands of dollars out-of-pocket. A home warranty can cost the between $300-$500.

Home insurance and home warranties are distinctly different, but both offer help when homeownership can seem especially stressful!

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