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Every Homeowner Should Know the Difference Between a Home Warranty and Homeowners Insurance Thumbnail

Every Homeowner Should Know the Difference Between a Home Warranty and Homeowners Insurance

There are countless details and paperwork involved when buying a home. Organizing everything from start to finish requires considerable time and energy. One of the most important details to address is understanding the differences between home warranties and home insurance. Both protect your home, and some overlapping complexities can further complicate the two. 

Home warranties and insurance offer various protections to the homeowner, and they will only cover damages in particular cases. Therefore, it’s essential to understand the benefits and limitations of each and determine if a home warranty is worth purchasing. Below we’re addressing the key points of both home insurance and home warranties to help guide you in making the right decisions about protecting your assets.

Home Insurance vs. Home Warranty

Home Insurance

Home insurance is purchased to protect your home and personal items from unexpected events that may be financially impactful and are outlined in an insurance policy.1 From natural disasters to theft, there are several potential hazards to protect yourself and your loved ones.

Home Warranty

Alternatively, home warranties protect home appliances and systems when they break down or stop functioning properly. The intention is to be able to repair or replace the item using a warranty instead of paying for it outright. 

According to the Canadian Home Builder’s Association, builders developing new housing structures must offer a third-party home warranty in British Columbia, Alberta, Ontario and Quebec. However, builders in any other part of Canada may choose whether or not to offer a home warranty.2 Additionally, some lenders, like the Canada Mortgage and Housing Corporation, require new home builders to belong to a warranty program - this is typically for those taking out a high-ratio mortgage.

Coverage and Cost

The structure of your home, personal belongings and personal liability will generally be covered by home insurance. In some cases, policies may protect home appliances in instances outlined in the policy. These assets won’t be covered for everyday wear and tear.1 

Home warranties can protect home appliances in the case of breakdowns or general use. For example, an oven may stop working soon after a home has been purchased. In this case, a home warranty would help pay to fix or replace it. 

Depending on the specific product offered and the company involved, the cost of both home insurance and warranties can vary. Usually, the more comprehensive the coverage, the more expensive it will be for the homeowner. 

Additional Details

Submitting a Claim

This can usually be done online or over the phone. Many home warranties require a claim to be filed within a specific time frame to remain eligible for coverage. Be sure to check the details of your warranty for associated details. 

Lender Requirements

Mortgage lenders often require the homeowner to have insurance before the lender approves their mortgage and releases the funds.1 Alternatively, home warranties are not usually required by lenders.

Coverage Limits

There are coverage limits associated with both home insurance policies and home warranties. These will be outlined when you purchase your policy or warranty.

Lowering the Cost of Coverage

There are several options to lower the cost of your home insurance and home warranty coverage. Companies will often have a variety of tiers to choose from so that you, as a homeowner, can decide on the amount of coverage that is right for you. 

You may also qualify for discounts by choosing online billing or maintaining a good credit history. Be sure to check with the company you’re working with to see what discounts are available. 

Another way to lower the cost of your coverage is to raise the associated deductible. In general, the higher the deductible, the lower the cost of coverage will be.3 

Understanding the Key Differences 

Both home insurance and home warranties offer protection for different instances, and it’s important to understand the variations between the two. At the end of the day, receiving the best coverage for your circumstances is critical. 

If you’re asking yourself whether a home warranty is worth the cost and conversation, the first thing you should do is read the fine print in your home insurance policy. Taking a close look at the details will help you determine if any gaps in your coverage need to be addressed with a warranty. 

  1. https://www.consumerfinance.gov/ask-cfpb/what-is-homeowners-insurance-why-is-homeowners-insurance-required-en-162/
  2. https://www.chba.ca/CHBA/BuyingNew/Your_New_Home_Warranty.aspx
  3. https://www.consumerreports.org/cro/homeowners-insurance/buying-guide/index.htm

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