Home insurance and a home warranty both protect your home, but they do so in very different ways. It's important to know how each works and what they cover.
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Home insurance protects your home against risks -- typically risks that come from outside your home. This includes weather such as tornadoes or hail, fires, damage from vandalism and theft. Home insurance also offers personal liability protection, meaning you are covered for damages that result from things such as someone slipping and falling on your property or your dog biting someone.
A warranty for your home also offers protection against things that go wrong, but it typically protects against things that happen in your house. Warranties differ somewhat in what they cover, but most home warranties would pay to repair or replace an appliance that breaks down, for example. Many home warranties also cover structural defects or faulty building techniques in your home.
Who buys a home insurance policy?
It's up to the homeowner to buy a home insurance policy, although there's often not a choice. If you have a mortgage on your home, your lender will require you to have a home insurance policy. If you don't get one, your lender may get one for you and then bill you for it. You typically pay your home insurance costs in monthly installments along with your mortgage payment.
Who buys a warranty?
It's not required that a homeowner buy a warranty for the home; anyone can buy one. It's common for people in the process of selling their home to buy a warranty for someone who agrees to buy the home. Many builders also offer home warranties with their newly constructed homes. The cost for home warranties is typically paid one time up front.
What does home insurance cost and what determines the price?
Homeowners insurance costs can vary widely based on a number of factors. It's very rare to find home insurance that costs less than $1,000 a year, and many policies cost many thousands of dollars a year.
The main factors that determine how much you pay for home insurance is how much your house is worth and where you live. If you own a house that's worth several hundreds of thousands of dollars and you live in an area where tornadoes or hurricanes are big-time risks, you will pay a lot for your home insurance. If you own a relatively modest home in an area with few weather or other disaster-related-risks, your home insurance costs will be lower.
What are the factors that set costs for home warranties?
Home warranties typically cost a few hundred dollars and their costs are based more on the age of the house because the older the house is, there more likely there are to be breakdowns that are covered by the warranty.
Are there costs beyond the premiums?
With both home insurance and home warranties, the annual premiums you pay are the not the only costs involved. Each time you make a claim on your home insurance, you pay a deductible cost, which is an amount you can set, often $500 or $1,000. Most home warranties require you to pay a service fee each time you use the warranty for a covered expense. A typical service fee is $75 to $100.
Both home insurance and home warranties have things they won't cover. Home insurance policies typically exclude flooding damage, earthquake damage and insect damage. Home warranties also exclude insect damage as well as break downs that occur because of deferred maintenance and normal wear and tear.