Protecting Your Investment: Home Warranties and How They Differ From Insurance


Your home is one of the most significant money finance investments you will make in your lifetime. You therefore want to protect both the structure and its contents. Most homeowners have insurance since it’s a requirement when securing a mortgage. However, if you have heard about home warranties, you may be wondering if you also need to purchase this additional coverage. This article will explain what home warranties are and how they help in situations where insurance may not apply.

Insurance in brief

According to American Home Shield, an insurance policy covers accidental damage to your home and personal belongings because of theft, fires and some natural disasters. Generally, these policies cover the inside and outside of your home, personal property and general liability for if someone in injured on your property. These are usually mandatory and renewed yearly.

If a fire damages your home or some other event occurs, a representative of the insurance company will visit and file a claim form for repair and replacement. If the claim is approved, the insurance will take your deductible and give you’re the rest of the money for repairs.

Home warranties explained

On the other hand, a home warranty covers the standard wear and tear of appliances and other components of your home. They are essentially service contracts which can come in handy if you need to make costly repairs or replace certain items or systems. Home warranties can cover things like kitchen appliances, washers and dryers as well as electrical, plumbing, heating, ventilation and air conditioning systems. Some contracts can also cover pools and spas. There is no need for a catastrophic loss as is the case with homeowners’ insurance. Home warranties are not mandatory to secure a mortgage.

As noted in this article on The Balance, home warranties are similar in concept to manufacturers’ warranties except they apply to multiple items in the home. Exactly which items are covered varies by contract and the specific needs of the homeowner. You can choose from basic to extensive coverage depending on your requirements, how much money you have and how much risk you believe your items are exposed to.

Both home warranties and home insurance offer coverage in the case of an unexpected event. However, insurance covers only sudden losses or damage and not the usual wear and tear of household systems and appliances. If your plumbing system suddenly fails or your washing machine breaks, insurance will be of no help to you. If these items are covered in your home warranty arrangement, you can expect some assistance in repairing or replacing them. The only way the washing machine would possibly be covered by insurance was if it was damaged during flood or fire or natural disaster.

Home warranties essentially cover many things which are not taken care of under homeowners’ insurance. It for this reason that they are an attractive option for many people. If your appliances and systems are particularly costly or valuable, it would make sense to purchase a warranty. You would not be burdened with high repair or replacement costs if something suddenly goes wrong.