Homeowner's Insurance and Home Warranties: Figuring Out Who Pays

What is the Difference between Homeowner's Insurance and Home Warranties?

A homeowner's policy is an insurance policy that covers the homeowner in the case of a loss to the home because of fire, theft, vandalism, wind storm or other damage. A homeowner's policy also covers damages that may be awarded to someone that is injured while visiting your home. A homeowner's policy covers the value of your home, and should be considered a necessity for anyone that owns a home.

A home warranty is a policy that works in much the same way as a homeowner's insurance policy, in that you pay an annual premium to receive coverage. The difference is, a home warranty covers the cost of routine home repairs that would normally come out of the pocket of the homeowner. A home warranty will cover things like a leaky roof or a refrigerator that doesn't keep your ice cream solid.

Do I Need Both a Homeowner's Policy and Home Warranty Policy?

Everyone who carries a mortgage should carry a homeowner's insurance policy in the amount of the appraised value of the home. This is the bare minimum coverage that you should have, for your peace of mind. If you do not have a mortgage on your home, you should still have homeowner's coverage. Homeowner's is valuable for many things other than replacing a home that is destroyed in a fire. Perhaps one of the most valuable features of a homeowner's policy is the liability coverage that you receive. If someone slips on a patch of ice or trips over a bump in the sidewalk leading up to your home, your homeowner's policy will protect you from a lawsuit.

A home warranty may be considered more of a luxury, but it really is not. Home warranties actually make the most sense for people that feel they can least afford them. A home warranty covers the cost of those home repairs that often crop up unexpectedly, when you can least afford them; for instance, a furnace that breaks in the middle of the winter? Water streaming in through the roof during the spring rains? For someone living on a fixed income or a tight budget, the cost of these repairs may mean saving money for several months. With a home warranty, as long as your premium is up to date, you will only be charged the cost of a service call, which is often less than 50 dollars.

Determining Who Pays for What

To consider yourself fully covered in the case of a household emergency, you should have both a homeowner's policy and a home warranty plan in place. Having both plans should provide you with peace of mind, but it does bring up the question of who pays for what? While it may seem confusing, and that there would be some overlap, it is easy to determine who pays for what.

Both your homeowner's policy and your home warranty policy will clearly state what is covered. Although there are can be additions and exclusions to both the homeowner's policy and the home warranty, there will be no overlap. Homeowner's policy typically cover things that may not occur, such as fire, theft or vandalism, just the way auto insurance covers you for accidents that you may never have. A home warranty covers you for routine maintenance, plumbing or electrical problems, a hot water tank that doesn't heat, just like a warranty on a tool covers the tool if it breaks.

Choosing the Best Provider

Whether you are shopping for homeowner's insurance or a home warranty policy, customer service is the first priority. Without someone available on the phone to answer your questions and get your claim processed, the most extensive coverage available will not be beneficial.

The length of time that a company has been in business is also important. While it is not a guarantee of good service, it is an indication that they are able to keep their customer's happy. When you are shopping for a homeowner's policy or a home warranty policy, talk to others who have similar policies, or who you know have recently filed claims. How was their claim handled? Was the paperwork overwhelming? How quickly was the claim settled? Although each claim is different, you can get some idea of how a company is run by how satisfied its current customers are.