The difference between a home warranty and homeowners insurance

When you’re buying a home, you know you need homeowners insurance. But what about a home warranty?

A home warranty is not an insurance policy. It is a contract covering repairs and replacements on your home’s appliances and/or mechanical systems, usually for a period of one to two years. There’s usually a deductible and many, but not all, of a home’s parts or components of a home are covered.

The average cost of a home warranty is $350 to $600, and it typically covers major items such as kitchen appliances, water heaters and furnaces. Homeowners with a home warranty call a service number for a repair and pay a small deductible with the rest of the cost of the repair covered by the warranty company. Many consumer groups say home warranties aren’t always a great deal, but some homeowners have found them helpful after a covered item or system failed soon after move-in.

With a home warranty, you typically aren’t free to select a repair company — the warranty company has its own network of repair technicians. And you may have difficulty tapping your warranty if the item is worn out, had pre-existing problems or was improperly maintained.

Homeowners insurance, on the other hand, is mandatory for those who have purchased their property with a home loan. Mortgage companies require it to protect their investment until the home is paid off. Homeowners insurance does not cover items on or in your home when they break or stop working — as the homeowner, you’re responsible for maintenance and upkeep. But your policy does provide financial protection against a range of disasters affecting your home and what’s inside it. It also protects your property and provides liability protection in the event you or other members of your household cause injuries and/or property damage to other people or someone is injured while at your home. No homeowner should be without homeowners insurance. It’s a policy that protects you in so many different ways.

If you purchased your home a while ago, it’s important to check in with your insurance agent each year to make sure you have enough protection to cover your personal belongings and that you’ll have enough to repair or rebuild your home in the event of a loss. It’s especially important to check in if you have expanded/renovated your home, are renting out a room or portion of your property or have made some major purchases.