Around 65% of American adults own homes. Owning a home is a goal that many people work hard to achieve, so it’s exciting when you finally purchase one.
When you own a home, you have the freedom to use it as you wish. However, you also have some responsibilities as a homeowner. One of these is to keep home insurance on your house.
You also can purchase a home warranty, which is very different from home insurance. If you consider a home warranty vs. home insurance, you might wonder about the differences.
There are some significant differences, and here is a guide to help you learn these. You’ll also discover why having both is vital for all homeowners.
The Basics of Home Insurance
When you buy a home, you must purchase an insurance policy that protects it. Your lender requires this, but that’s not the only reason you need it. You need insurance protection to safeguard this investment.
So, what is home insurance? Home insurance is a product that protects your house and belongings against potential damages.
Your home might not experience any damages that require filing a claim, but having home insurance is your only protection against specific perils. Home insurance typically covers damages from the following risks:
- Wind
- Hail
- Storms
- Fire
- Theft
- Vandalism
- Water
You can also add coverage for perils your policy doesn’t cover. For example, you can purchase flood insurance to protect your home against damages caused by floods.
You’ll have some choices to make when buying a policy, including the following:
Structural Coverage Amount
First, you must decide how much structural coverage to have. Structural coverage refers to the amount you need to cover your home’s structure.
The best way to select the right amount is by considering how much it would cost to rebuild your home. Once you determine this amount, you can choose it for your structural coverage amount with your home insurance.
Personal Property Coverage
Next, you must select the amount of coverage for your personal property. Personal property coverage protects your belongings, including furniture, clothing, and home decorations.
Many insurance agents determine a person’s personal property coverage amount with a percentage.
For example, you might want to use 50% as your basis. If you have $500,000 in structural coverage, you should choose $250,000 for your personal property coverage.
Deductible
Finally, you must choose a home insurance deductible. This amount refers to your responsibility when filing a claim.
For example, if your home experiences $10,000 in damages from a wind storm, your insurance company pays $9,000 if you have a $1,000 deductible.
You pay your deductible before the insurance company pays the remaining balance. It’s vital to know that a higher deductible leads to lower insurance costs.
Therefore, you’ll save money if you choose a higher deductible. However, you can also save money on your premiums in other ways.
Reasons You Need Home Insurance
You are responsible for your house and its loan when you own a home. Therefore, you may need to do things to safeguard your property, and buying homeowner’s insurance is one of the best things.
Here are the primary reasons to buy home insurance:
Lender Requirements
First, you need home insurance to meet your lender’s requirements. Your lender has a significant stake in your property by lending money to you to purchase the house. As a result, your lender is a lienholder on your property.
Lenders willingly offer mortgage loans to borrowers who meet the criteria, but they set some requirements for these individuals. One such requirement is home insurance.
You must purchase home insurance if you have a loan to meet your lender’s requirements. If you fail to buy or keep a policy on your house, your lender will buy one for you and bill you for it.
Protection From Financial Losses
The other reason you need home insurance is to protect yourself from financial losses. Home insurance protects your house and things, and it’s the only form of protection you have against potential threats.
Consider what you would do if your home burnt down from a fire. If you had home insurance, you’d file a claim and receive compensation to pay off your mortgage loan. What would happen if you didn’t have home insurance?
You would lose everything. Yet, you’d still owe your lender the current mortgage balance you have. As you see, this could be devastating financially.
The Basics of a Home Warranty
Now that you understand the basics of home insurance, let’s talk about home warranties. What is a home warranty?
Many people assume it’s the same thing as home insurance. However, this isn’t true. A home warranty is different.
One way to understand home warranties is by examining a vehicle warranty. When you purchase a new car, it comes with a warranty. If you experience car problems, your warranty covers the repair costs.
A home warranty is the same thing, except that it covers things within your home, including the following things:
- Appliances
- Hot water heater
- Furnace
- Plumbing system
- Electrical system
Of course, every home warranty plan is different. You can include the items you want with your plan and exclude others. When buying a warranty, you should carefully review what items it covers before agreeing to it.
Home warranty companies might require paying for one year of coverage in advance. However, some allow you to pay monthly.
If any of your covered devices break, you can call for repairs. Generally, you will pay a service call for the repairs, but you shouldn’t have to pay for any repairs. If they can’t fix it, they might replace it for free.
As you can see, a home warranty doesn’t cover damages to your home or belongings. Instead, it only protects your home systems if they encounter problems.
Reasons You Need a Home Warranty
So, why would you want a home warranty? First, you should know that your lender won’t require that you purchase one. The choice is yours alone, but having one is helpful.
The first reason to purchase one is to safeguard your finances. When you experience problems with covered items, such as your refrigerator, you’ll pay less money to fix it.
Therefore, you won’t have to spend hundreds of dollars on these unexpected expenses. Instead, you’ll pay a small fee to get the repairs you need. As a result, you protect your budget with a home warranty.
If you’re on a tight budget, this is a smart move. You can budget your monthly cost for the warranty, knowing you won’t have major unexpected bills to pay when things break.
The other reason to purchase one is for peace of mind. Homeowners have many responsibilities, and one of the main ones is paying for all the repairs needed for the house.
You might feel stressed each time an appliance or system breaks in your home, but you can have peace of mind with a warranty.
Your warranty guarantees that a technician will fix or replace this device without spending a fortune on the repairs.
The Vital Differences Between a Home Warranty vs. Home Insurance
In summary, you’ll see that home insurance protects your house and belongings and is a requirement that lenders have.
On the flip side, a home warranty gives you peace of mind and financial relief when major systems in your home stop working.
Each of these offers helpful and valuable protection in different ways. As a result, you may want to buy both.
How to Buy Both Options
If you’re ready to buy both options, you can start with home insurance. Top of Insurance offers customized home insurance policies for homeowners.
You can call us for a quote if you’d like to learn more about the costs and options.
To purchase a home warranty, you must find a company that offers these. When contacting them, they might ask for the details of your home systems and appliances, including their brands, model numbers, and ages.
They can give you a quote after acquiring these details from you, and you can start your home warranty right away.
Learn More About Your Options
As you consider the differences between a home warranty vs. home insurance, you’ll probably see why both are important. Home insurance protects your home, while a home warranty protects things in your home.
Are you interested in getting a quote for home insurance coverage? If so, contact Top of Insurance. We can provide a quote for you that will sufficiently protect your home and everything you own.
