Did you know that in 2021, Americans spent an average of $22,624 on housing expenditures alone? That’s $1,207 higher than the year before! Rising property taxes and construction and labor costs, in turn, fueled that growth.
You may face even higher expenses if you don’t have a home warranty or insurance policy. You’d have to pay out of pocket to fix broken or damaged appliances or systems.
But what exactly is a home warranty? What about home insurance?
This home warranty vs. insurance guide compares the two, so read on to learn what they are and how they differ.
Home Warranty vs. Insurance: The Critical Differences
A home warranty plan and an insurance policy both help pay to fix or replace covered items. A chief difference is that a warranty covers anticipated or predictable circumstances. In contrast, home insurance helps pay for damages caused by unforeseen events.
Another thing to note is that a home warranty is an optional expense. However, a home insurance policy is often mandatory if you have a mortgage.
What Is a Home Warranty Exactly?
A home warranty is a contract between a homeowner and a provider of appliance or system services. The homeowner pays the service provider a monthly or annual fee. In exchange, the service provider agrees to provide discounted repair or replacement services.
Home warranties are available for most home appliances like refrigerators and washing machines. You can also get them for electrical, plumbing, heating, and air conditioning systems.
Home warranties often cover appliance breakdowns caused by age, wear, and tear.
Let’s use a furnace, which should last 15 to 25 years, as an example. But, unfortunately, yours has already failed despite being just ten years old.
If you have a home warranty, it should help pay for the costs of fixing or replacing your heater.
What Is Home Insurance Then?
Home insurance, also known as homeowners’ insurance, protects your home against unforeseen events.
A perfect example is wind and hail damage, which, in 2020, accounted for 45.5% of all home insurance claims. Such incidents are unpredictable but can cause severe damage to roofs and windows.
Another example is damage caused by a burst pipe due to sudden freezing temperatures. In this case, your home insurance can help pay for the costs to fix or replace the water-damaged parts of your home.
Home insurance policies also help pay for damaged caused by fire, lightning, and theft. They even protect homeowners against bodily injury and property damage liabilities.
Despite their extensive coverage, homeowners’ insurance policies only cover some perils. For instance, they specifically exclude flood damage. Thus, flood insurance is a coverage you must buy separately.
Like home insurance, flood insurance may also be a mortgage requirement. Luckily, it’s not expensive; here’s a guide detailing affordable flood insurance information.
Buy a Home Warranty and Insurance Today
And that concludes our home warranty vs. insurance guide. Now you know the latter is optional, whereas the former is mandatory for mortgaged houses. You also learned a warranty covers “expected” events, while insurance covers unforeseen circumstances.
In any case, both a home warranty plan and a homeowners’ policy can protect you from losses and damages. So, why not get the two together, even if you’re already mortgage-free?
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