Difference Between Homeowners Insurance and Home Warranty: An Overview

20 Oct Difference Between Homeowners Insurance and Home Warranty: An Overview

Homeowners insurance and home warranty are two different sides of a coin that get mixed up most times. Although the distinctive line between the two may seem puzzling, they are not the same. Policyholders seem to think that having either one of them is enough to cover for the other, but the National Association of Insurance Commission says otherwise. This article contains a summary of the difference between the two.

What Is Homeowners Insurance?

Homeowners insurance covers a policyholder and their home from the financial burden that may arise due to any damage to their home. It covers damage to the home structure as well as the belongings inside the home.

What Is Home Warranty?

As its name implies, a home warranty covers the cost of repair and replacement of defective home appliances and systems. It covers only the major systems in a home like the plumbing and electrical system in addition to other specified systems. This kind of insurance is active for a set time, and payment can be in installments – yearly or monthly, or in full.

Homeowners Insurance Vs. Home Warranty

How They Work

A home warranty covers the cost of repair or damage of the internal system of a home due to defects, wear, or tear. In the event of such damage, the insurance company sends in a technician to assess the damage and make repairs. It is usually sold along with a house as a bonus.

On the other hand, homeowners insurance covers the cost of repair or damage to the home structure, the belongings inside, and other liabilities. Depending on the damage covered, the insurance company sends in an adjuster to assess the damage after a claim has been filed. The report from the adjuster determines the kind of settlement required.

Coverage Plan

A typical home warranty has three coverage plans

• Appliance coverage
• System coverage
• Combined coverage

Homeowners insurance provides four major coverage

• Home structure coverage
• Personal belongings
• Liability coverage
• Additional living expenses
• Cost

Homeowners insurance has an average cost of $1,211, according to NAIC 2019 report. However, this cost is influenced by

• The state/place of residence
• The building structure and condition
• The belongings in the home
• The deductible – the amount paid

On the other hand, the cost of a home warranty is determined by the monthly or annual fee and the service fee.

The monthly/annual fee is similar to paying a premium, except that it can be paid monthly or yearly. It is the amount paid for accessing warranty services.

The service fee is the discounted amount the homeowner pays for each repair and is similar to the deductible. However, the cost of the service fee is determined by the monthly or annual fee. In other words, the higher the amount paid as a monthly/annual fee, the lesser the service fee.

Bottom Line

Although homeowners insurance and home warranty are different, both of them are important in protecting a home and its belongings. When you’re ready to secure reliable homeowners insurance, talk to the team at Dougherty Insurance. We can help you find the coverage you’re looking for.