The lingo used when buying a house or figuring out what type of insurance you’ll need can be quite confusing.

Do you need a home warranty if you already have insurance? What even is a home warranty? Is there even a difference? To go ahead and answer that question…yes, there is.

You may be wondering whether either of them is worth the money you’ll be paying for. To help you decide which one to go with or if you should go with both, we’ve collected information on what they are, what they cover, and the pros and cons of each one.

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Home warranties

Warranties are plans designed to cover your home’s appliances, systems, and any other components such as plumbing, A/C systems, and electrical.

What do they cover?

Warranty plans cover the inner systems and appliances in a home. Depending on what you are willing to spend, your warranty plan can include additional utilities or appliances, such as pools or refrigerators.

It also depends on the warranty company you are purchasing from to see what all they cover. It’s important to make sure you look at what is covered and what is excluded.

Most warranty plans will always cover the most basic appliances:

  • Electrical
  • Air conditioning and heating
  • Water heater
  • Plumbing
  • Stoves, ovens, dishwashers, refrigerators

How do they work?

Typically, a homeowner will purchase a warranty plan through a home warranty company and pay monthly installments, since most plans cost several hundred dollars a year.

If you experience a problem with a covered appliance in your home, you can call your warranty company who will dispatch an inspector to take a look at the problem. Most warranty companies work with service providers that will go and inspect the home and provide repairs to the appliances.

There are also builder warranties that come with new homes and protect parts of the home that are permanent (i.e., flooring, electric, plumbing).

What are the pros and cons?

Pros:

  • Can reassure you by repairing damaged appliances
  • The cost of a warranty plan is usually way less expensive than buying new appliances
  • You can save time by having a professional repair your appliances

Cons:

  • Most plans require you to pay a service fee in addition to the plan cost
  • There are limits to how much a warranty plan will cover in costs to repair appliances
  • Your claims for needing repairs can be denied by your warranty company

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Home insurance

Homeowners insurance are policies that will cover any damage or the loss of a home in the case of emergencies or natural disasters.

What does it cover?

Home insurance will cover the damage or loss of a house or house property caused by external forces, such as natural disasters, burglary, or any other unforeseen and unexpected causes.

Insurance will usually cover damage caused by:

  • Robberies
  • Storms, tornadoes, hurricanes, floods
  • Falling debris
  • Fires
  • Injuries occurring on a property (sometimes)

How does it work?

The majority of the time, people will purchase a home insurance policy through individual or private insurers, insurance agents, or company websites.

The way that home insurance works depend on the type of policy that is bought. If there is damage to your house, normally you would contact your insurance company and file a claim. They then decide how much money to give for repairs.

Homeowners usually pay their monthly insurance bill with an escrow account, which is typically managed and used by their mortgage lender.

What are the pros and cons?

Pros:

  • Provides protection for damage and loss of belongings
  • Can help you finance your home in the future or apply for a mortgage loan
  • Can protect you from a lawsuit if someone is injured on your property

Cons:

  • Floods and earthquakes aren’t covered in typical insurance policies
  • Loss of valuables like jewelry, heirlooms, art pieces may not be generally covered
  • The cost can be very expensive

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What are the major differences?

Both warranties and insurance have similar functions: protect and provide repairs to the interior or exterior of a home.

Because both terms help out the homeowners, they often get confused. To clear up the confusion, there are differences between home warranties and home insurance.

The major differences include:

  • To qualify for a mortgage, you will need home insurance, but home warranties are not necessary
  • Home warranties cover repairs to poorly maintained home appliances such as heaters, A/C units, electrical, etc.
  • Home insurance covers damage to the home through natural accidents or an injury on the property (usually everything that is not due to wear-and-tear)

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Is it a good idea to buy both?

Since both of them cover different things, it may be wise to choose both a warranty and insurance when buying a home. There is always the chance that you may not use one or the other, but if you are looking to have some peace of mind about protecting your home, then purchasing both won’t be a bad idea.

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Buying home insurance

Determining whether to purchase an insurance policy will depend on your location and susceptibility to unexpected accidents.

If you are wanting to buy a home in a state that has many hurricanes (like Louisiana or Florida) or in a state that has many tornadoes (like Kansas), then purchasing home insurance is probably something you should do.

Keep in mind that if you ever want to refinance your house or receive a mortgage loan, lenders will most likely require you to have home insurance. This is because lenders will need to make sure they invest in a protected home.

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Buying a home warranty

Determining whether to buy a home warranty is a bit trickier, as some claims to repair certain household appliances can be denied. There are benefits to buying a warranty, like the low annual cost and peace of mind, but there are limitations as to what appliances will qualify to be repaired.

If you are a homeowner who has an older home or older appliances that are prone to breaking or do not want any surprise bills for those appliances, then buying a warranty may be a good option.

Choosing a trusted warranty company is also something very important to consider. You want to make sure to read the contracts offered and see what they are willing to repair. A list of the best warranty companies of 2021 is a great place to start if interested in purchasing a warranty plan.

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The bottom line

So now that you’re more familiar with both terms, let’s do a recap.

Home warranties are not the same as home insurance. Warranties are separate plans (usually lasting a year) that cover repairs for home appliances when they break or stop functioning due to wear-and-tear.

Home insurance is quite important as it protects the inside, outside, and the whole property. If your home is damaged or if a person is damaged on your property, then your home insurance may cover the cost of repairing what was broken during natural incidents or disasters.

With the pros and cons of both warranties and insurance policies, it really comes down to what your situation looks like and what you think is best for your family or yourself.

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