You may already recognize homeowners insurance as something that you need to carry if you own or are considering the purchase of a home. A home warranty, on the other hand, may not be as familiar. Both products can provide protection for damages to your home, although they do not cover the same types of occurrences.
Home warranty coverage is optional and will pay to repair or replace your household appliances if they break down. Homeowners insurance covers damage due to occurrences like fire and windstorm, and it will also reimburse you for theft or loss of personal property. You will need homeowners insurance to obtain a mortgage for your home, and you'll have to keep it for the length of the mortgage. Without either type of coverage, you would have to pay for repair or replacement out of your own pocket.
To put your home warranty to use, you contact the warranty company to arrange to send a repairman to your home to examine the appliance. You will pay an out-of-pocket deductible, typically around $50, before coverage takes effect. To activate your homeowners coverage, you need to contact your insurance company to file a claim. A claims adjuster will assess the damage or loss to determine how much the company will pay. You will also need to pay a deductible, which can range from $100 to $1,000.
Existing home warranties are often included as part of the deal when you purchase a home, providing you with "free" coverage for the remainder of the warranty period. Although you may not have to pay a premium, you'll still have to pay the deductible and any service fees. However, you will need to purchase your own homeowners insurance policy, as coverage does not transfer from one owner to the next.
There is no debating the need for home insurance, because it is required to obtain a mortgage. However, there is some debate about the need and value of home warranties. If your home and appliances are relatively new, paying for home warranty coverage may be a waste of money. According to MSN Money, warranty contracts often come with loopholes that may limit coverage. The company will typically attempt to repair the appliance and only replace it as a last resort, meaning the same problem could occur repeatedly.