When purchasing a new home, it is important to do research on all facets of the homebuying process. One thing you will need to understand is how to best protect yourself and your investment if anything were to go wrong. The information below explains homeowner’s insurance and home warranties to help educate yourself on your options. Please keep in mind that they are not an either-or choice. Both types of protection can be immensely helpful.
Homeowner’s Insurance
Homeowner’s insurance pays for any accidental damages and loss that are caused by rarely occurring events like fire, lightning strikes, windstorms, and hail, however, damage from earthquakes and floods is typically not covered. It also covers the replacement of personal property in case of theft or damage and liability if a person were to get injured in your home or on your property. Banks usually asks you to obtain a policy if a mortgage is being issued. Make sure to keep in mind that each type of coverage in the policy is subject to a limit and, in most cases, you will have to pay a deductible.
Home Warranty
A home warranty is designed to cover the cost of regularly occurring repairs and replacements of larger appliances and crucial systems in your home that may fail or break due to normal wear and tear. This includes but is not limited to HVAC, electrical, or plumbing components, kitchen appliances, and your washer and dryer. Home warranties will not cover damages if appliances were not maintained properly or if the damage is from a fire or other disaster. As with home insurance, there are generally limits and deductibles.
As banks generally do not require home warranties for mortgages, less than 5% of U.S. homeowners have a home warranty. In contrast, 85% of U.S. homeowners have homeowner’s insurance. The disparity in these numbers is amazing when you consider that home warranties cover regularly occurring home repairs while homeowner’s insurance policies only cover rarely occurring perils.
Depending on your situation, one or both options may be right for you.