Home Insurance vs. Home Warranty: Which One Do You Need? (part 2)
When You Need Home Insurance
You need home insurance when you’re purchasing a property, especially if you’re financing it through a mortgage. Lenders want to protect their investment, and you want to safeguard your financial future. It’s there for life’s bigger events—storms, burglaries, or accidents.
When You Should Consider a Home Warranty
A home warranty is helpful if your home has older appliances or if you’re not prepared for the cost of large repairs. A well-functioning HVAC system, for example, can be expensive to repair or replace, but a home warranty covers these issues without a significant out-of-pocket cost.
What Does Home Insurance Typically Exclude?
Although home insurance is crucial, it doesn’t cover everything. It’s important to understand the exclusions, so you don’t assume you’re protected when you’re not.
Common exclusions include:
- Flood damage (you need a separate flood insurance policy)
- Earthquakes (you need separate earthquake insurance)
- Routine wear and tear of home systems and appliances
- Damage from pests like termites or rodents
- Deliberate damage caused by the homeowner
For example, if your refrigerator breaks down due to age, your home insurance won’t cover the cost of repairs. Instead, you would need a home warranty to step in.
What Does a Home Warranty Typically Exclude?
Similar to home insurance, a home warranty comes with its own set of exclusions. It’s essential to read the fine print when purchasing one to understand exactly what is covered and what isn’t.
Common exclusions include:
- Pre-existing conditions (items already broken when the warranty starts)
- Cosmetic defects (such as dents or scratches on appliances)
- Items that are improperly maintained
- Upgrades or system improvements
- Non-standard systems or appliances not typically found in homes
If your water heater fails because you haven’t properly maintained it over the years, your home warranty provider may deny the claim. Additionally, the warranty won’t cover the cost of upgrading your current system, like installing a new HVAC unit with advanced features.
Cost Comparison: Home Insurance vs. Home Warranty
Let’s take a closer look at how the costs compare between home insurance and a home warranty. It’s important to budget for both if you’re considering having comprehensive protection for your home.
Home Insurance Costs
Home insurance premiums are based on several factors, such as the value of your home, your location, and your coverage limits. On average, you can expect to pay between $1,000 and $2,500 per year, but this varies greatly depending on the specifics of your home and the amount of coverage you choose.