Home Warranty vs. Homeowners Insurance: Which is Right For You?

Becoming a new homeowner is an exciting time. However, it also brings with it a whole new level of responsibility. And now, you’ve got a beautiful home that you’re responsible for protecting from all potential threats. The good news is that you aren’t alone in that—home insurance and other products are available to assist with all manner of protections for your new home, and you might need more than one of them.

When it comes to choosing the right protection, many people wonder what the difference is between a home warranty and homeowners’ insurance, as well as which is the best choice. The short answer is that everyone’s situation is different, but homeowners’ insurance will almost always be required—a home warranty may be optional.

What is a Home Warranty?

Home warranties are optional coverage, often offered by lenders and third-party providers, for a service fee. This is essentially a service contract that helps cover home repairs, replacements, and other issues that arise. Of course, home warranties also have their limitations and exclusions, so it’s important to read the fine print.

This warranty can provide full or partial coverage for various home repairs and services, including things like HVAC, plumbing and electrical, roofing, and more. However, it is not the same as home insurance and it should not be treated as such. If anything, a warranty is simply an extension of the protection that you have for your home, not an insurance replacement.

Granted, these can be a great resource for people who are looking to get a little additional coverage. In many cases, they’re offered at a discount at the time of the home purchase, which is why people even consider them in the first place. It doesn’t hurt to look into a home warranty because it could help you save a small fortune on repairs and replacements down the line.

What is Homeowners’ Insurance?

Homeowners’ insurance is required by mortgage lenders, and may even be required by state laws. It also includes a deductible that must be paid before coverage kicks in, along with a premium that is usually paid annually or bi-annually. Some people have home insurance rolled into their mortgage and escrow payments instead of paying the lump sum premium at once.

This insurance protects against perils, natural disasters, and events that can cause damage to the structure of the property, personal belongings, and so forth. It also offers liability coverage against lawsuits due to accident or injury and can pick up the additional living expenses if you’re displaced while your home is undergoing repairs. Home insurance may not cover flood damage, sewer and drain backups, and certain other events. Be sure to check your policy for exclusions or limits on coverage.

How Do I Know What I Need?

Every homeowner needs home insurance, point blank. How much coverage you need, of course, varies depending on the home that you have, your personal belongings, and how much other protection you want. Your lender may also have their own requirements that have to be met so check with them, too. Ultimately, it’s always better to buy more coverage when you can because that will ensure that you’re less likely to end up paying for repairs or losses out of pocket.

The best way to figure out what you need is to sit down with an insurance expert and have an independent review done of your home and circumstances. Then, they will be able to recommend the best insurance and other financial products, including warranties, that they deem appropriate.