The Difference Between Homeowners Insurance and a Home Warranty
Owning a home means a lot of responsibility – when something goes wrong, you are on the hook for repairs. If you have a new home, you may also have a home warranty – but what a warranty covers and what homeowners’ insurance covers are two very different things.
Home Warranty Coverage
According to the Federal Trade Commission’s information on home warranties, a home warranty may provide “limited coverage of workmanship and materials” for specific parts of the house in a new home. This usually includes electrical systems, main house plumbing, your roof, and other structural components of the home.
Depending on your specific home warranty, you may also have coverage for home appliances, such as an oven, stove, refrigerator, washer and dryer, or dishwasher, or house systems such as HVAC units or furnaces. If these are not covered by your home warranty, they may be covered under manufacturer warranties.
Homeowner tip: Keep a folder with all warranty, guarantee, proof of purchase, and service technician information for the appliances and systems in your home for easy reference. This can make it easier to obtain help if needed.
While your new home may come with a warranty, it typically will expire after several years. Some companies may allow you to renew your warranty by paying an annual fee. In case of a claim, you are typically required to pay a nominal amount (such as the cost of a service call) and the warranty covers the rest of the costs.
Home Insurance Coverage
Your homeowners’ insurance policy, or HO3 policy, is designed for your protection in case of weather events, fire, water damage from broken pipes, theft, and other causes of loss. If you have hurricane coverage as part of your homeowners’ policy, it can help cover the costs of restoring your home after damage by a hurricane.
Homeowners insurance also typically covers liability in case of an injury occurring on your property. You can also purchase additional insurance for luxury and high-priced items, to cover losses due to theft or even misplacement. If you live in a flood zone in Florida, you may also need to purchase a federally backed flood insurance policy, as basic homeowners’ insurance does not cover flood damage.
Homeowners tip: Create a complete home inventory of all of your valuables to present to your insurance agent. Your valuable items can be insured with scheduled personal property coverage, which provides adequate coverage for luxury items and expensive items that may exceed the limits of a standard policy.
Your policy comes with an annual premium, which is set based on a series of factors such as the age and condition of your home and its geographic location. In case of a covered claim, you are typically required to pay a deductible (which may vary based on the type of claim and your specific policy parameters), and the insurance company covers the rest of the costs.
Whether or not you have a home warranty, homeowners insurance is a must-have for most homeowners who carry a mortgage, and even those who own their Florida homes outright find insurance to be an item on their must-have list for comprehensive protection and peace of mind.