Home Warranty vs. Homeowners Insurance: What's the Difference?
Homeowners insurance and home warranties sound similar but cover completely different things. One is required. The other is optional — and whether it is worth it depends on your situation.
Homeowners Insurance: Required
Homeowners insurance covers damage from events — fire, theft, storms, liability. It protects the structure and your belongings from unexpected disasters. Your lender requires it. It does NOT cover things that break from normal use or age.
Home Warranty: Optional
A home warranty is a service contract that covers repair or replacement of major systems and appliances when they break down from normal wear. Think HVAC, water heater, dishwasher, electrical system. You pay an annual premium ($300-$600) plus a service call fee ($75-$125) each time you use it.
When a Home Warranty Makes Sense
If you are buying an older home with aging systems and appliances, a home warranty can provide peace of mind in the first year. Sellers sometimes offer one as part of the deal. After the first year, evaluate whether it makes more financial sense to self-insure by putting that $300-$600 per year into your home emergency fund instead.
Key Takeaways
- ✓Homeowners insurance covers disasters — it is required by your lender
- ✓Home warranties cover breakdowns from normal wear — they are optional
- ✓Home warranties can be valuable for older homes with aging systems
- ✓After year one, compare warranty cost vs. building your own emergency fund
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