09 Nov The Difference Between Home Warranty and Home Insurance
Home warranty and home insurance protect homeowners and rental property investors by providing coverage against costly repairs and structural damage. While home insurance and an additional home warranty both have annual premiums, they are not the same.
We know it often gets confusing for people to differentiate between these policies and know if they have the coverage they actually need. Therefore, we are going to discuss home warranty and home insurance, their similarities, and how they are different.
Let’s dig into it.
Home Warranty and Home Insurance
Essentially, home warranties cover repairs and replacements of your home’s systems and appliances when they get worn out. On the other hand, home insurance provides coverage against structural damage, loss of personal property from emergencies, and catastrophic related issues, etc., so typically you can expect the latter to be more expensive.
Now, let’s discuss both policies in detail to further your understanding. So make sure you read till the end.
A home warranty offers coverage for the repairs and replacements of appliances and home systems, such as an HVAC, when they fail from old age or normal wear and tear.
The homeowner will typically need to pay an annual premium for their home warranty policy that generally ranges between $300 and $600, depending on the company you choose. This helps save the owner from costly appliance repair in case an appliance stops working or malfunctions.
Homeowners, whether they have a rental property or not, can reach out to these home warranty professionals to assist when a repair situation arises. However, these companies may still charge you a small service fee ranging between $60 and $100 for the job. So, if your AC goes out or malfunctions, their partner contractors will visit your home to inspect the unit. If required, they will repair the appliance/s, or may even be able to replace the unit all together if it doesn’t work after service.
However, it’s important to note that homeowners generally do not need home warranty policies, even if they do have a bank owned mortgage.
Homeowners interested in real estate investing typically will need to apply for a mortgage before they can qualify for a home purchase. During this process, you can expect lenders to usually ask for home insurance coverage to ensure their investment will be protected.
Home insurance will typically cover the structural damage and personal/valuable property loss mentioned by the insurance policy in the terms and conditions of the agreement. These policies aid in cases of burglary, theft, and larger catastrophic issues, including fire, flood, etc. For example, if your property floods during Spring storms or because of a burst pipe, and is determined to need a build-back, you’ll be grateful to have this home insurance policy in place.
But don’t forget about additional coverages, like mold coverage. This type of coverage is usually considered an add-on item for property insurance companies, and is well worth the minimal monthly fee that it incurs. It will help offset spending potentially thousands of dollars in mold damage that could occur from unforeseen flooding events.
Additionally, insurance policy owners can also expect to pay a deductible before making any insurance claims. The average premium cost for these home insurance policies ranges between $300 and $1000 per year, depending on the type of home insurance policy you buy.
It’s also important to note that a home insurance policy carried by the homeowner (or rental property owner) is going to be different from a home insurance policy carried by a tenant.
For example, if burglary or a catastrophic event occurs, then the homeowner and renter may both need to file a claim depending on what kind of damage/loss occurs. Typically, a homeowner will be filing a claim to assist in coverage on structural damage to the home, whereas, a renter might file a claim for losses to their furniture or other personal property.
Differences between Home Insurance and Home Warranty
Just to reiterate, home insurance and home warranty policies both cover damages and repairs and require a deductible and premium. But they do have some differences – the primary being the coverage these policies provide. A home warranty policy covers damage and repairs to home appliances such as air conditioning units, ovens, etc., but it would not cover structural damage, like holes in the wall or pipe repair.
Home insurance covers property and personal property damage due to natural disasters and emergencies. Mortgage companies require home insurance to ensure that if the home was to burn down, their investment would be covered.
While these policies cover different types of repairs, they are both important for keeping your property secure and your repair costs to a minimum.
Home Warranty vs Home Insurance: What Do You Need?
It all comes down to one simple question: what is beneficial for your bottom line? It’s really up to you. While we would suggest purchasing both types of policies to cover all your bases, having home warranty simply isn’t required. However, having home insurance is an absolute necessity and requirement, and will give you greater peace of mind.
Work with a Property Management Partner
If you own a rental property, then hiring a professional property management team may be in your best interest to help you manage all the details and help you mitigate both visible and invisible risks when it comes to property maintenance and repairs.
You can visit 1836propertymanagement.com (Resources) to find a huge library of real estate investing and property management education. Or if you’re an Austin, Texas property investor, contact us today to get the right advice and guidance to ensure you have all the essential coverages. We look forward to assisting you!
By: Kayla Gonzales, 1836PM Marketing Manager