Home Warranties and Homeowners Insurance: Differences, Coverage, and Who Needs Them

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Is a Home Warranty the Same as Homeowners Insurance?

Your dishwasher breaks down, flooding your kitchen and destroying your hardwood floor. How will you pay for the emergency repairs? Both home warranties and home insurance can help, but they cover different things. Home warranties cover system or appliance failures due to wear and tear; home insurance covers your home’s structure and contents against risks such as fire, theft, or hail.

What Home Warranties Cover

Home warranties typically cover the following:

• Plumbing
• Electrical
• HVAC
• Water heater
• Ducts
• Garbage disposal
• Dishwasher
• Stove and oven

Additional coverage for items like refrigerators, washing machines, dryers, spas, and swimming pool pumps may be available for an extra cost.

What Home Warranties Don’t Cover

Home warranties generally exclude:

• The physical structure of your home, such as the foundation or walls
• Appliances or systems not specifically listed in the warranty
• Damage caused by poor maintenance
• Damage due to insects or vermin
• Failure due to incorrect installation
• Appliances or systems that have been modified
• Anything you attempted to fix yourself and failed
• Failure due to problems that started before your warranty became active

Additionally, you typically have no choice in the repair company or parts used in repairs. If a system or appliance needs replacement, home warranties usually only pay to replace the item with a comparable new one, not an upgrade.

Who Should Buy a Home Warranty?

Consider a home warranty if:

• Your home’s major systems or appliances are no longer under a manufacturer’s, builder’s, or credit card’s warranty
• You couldn’t easily afford to replace or repair a major appliance or home system
• You don’t want the hassle of finding a repair company, comparing quotes, or managing repairs and want someone else to handle it for you

What Home Insurance Covers

A standard home insurance policy provides four kinds of coverage:

• Dwelling or structure coverage for repairs or rebuilding due to damage from fire, wind, smoke, lightning, hail, vandalism, theft, and some kinds of water damage
• Personal possessions coverage for replacing your home’s contents if they’re destroyed, damaged, or stolen in a covered event
• Liability insurance for medical costs for visitors injured in your home, legal expenses if they sue you, and injuries you or your family cause to people or property outside your home
• Additional living expenses insurance to cover the extra expense of living away from home if your home is declared uninhabitable due to a covered event

What Home Insurance Doesn’t Cover

Homeowners insurance doesn’t cover the following risks:

• Earthquakes
• Floods
• Sinkholes
• Sewer, septic tank, or drain backups or sump pump failures
• Normal wear and tear to your home and its systems

Who Should Buy Home Insurance?

You should purchase home insurance if:

• Your home is mortgaged. Mortgage lenders generally require home insurance to protect their investment.
• You’d have trouble paying out of pocket to rebuild your home if it were destroyed by a major emergency.
• You’d struggle to pay for a major home repair, such as a falling tree smashing a hole in your roof.
• You want to protect your assets against lawsuits by visitors to your home or property.

Do I Need a Home Warranty and Home Insurance?

Home insurance is generally essential; home warranties are not. Although homeowners insurance isn’t required by law, it’s usually required by mortgage lenders. Even if your home is paid off, you need home insurance to protect your home and assets in case of a disaster or lawsuit. Without homeowners insurance, you’d be on the hook for the cost of rebuilding your home or paying off your mortgage.

Home warranties can fill gaps in your home insurance policy by covering wear and tear to a home’s appliances and systems. However, many home warranties have significant exclusions. Make sure you know exactly what a home warranty covers before purchasing one and understand what actions could invalidate your warranty or cause a claim to be denied.

The Bottom Line

Home insurance and home warranty plans are two different options for protecting your home. Whether to buy both depends on your needs and budget. Setting aside money for home maintenance and repairs could give you more flexibility than paying for a home warranty. It could also help keep your home in good condition so you’re less likely to have an insurance or warranty claim. Building a solid emergency fund can give you the resources to repair or replace appliances or systems when they break down.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with the best mortgage solutions tailored to your needs.

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