There are countless details and paperwork involved when buying a home. Organizing everything from start to finish requires considerable time and energy. One of the most important details to address is understanding the differences between home warranties and home insurance. Both protect your home in some way, and there are some overlapping complexities that can further complicate the two.
Home warranties and insurance offer various protections to the homeowner, and they will only cover damages in particular cases. Therefore it’s important to understand the benefits and limitations of each, as well as determining if a home warranty is worth purchasing.
Below we’re addressing the key points of both home insurance and home warranties to help guide you in making the right decisions about protecting your assets.
Home Insurance vs. Home Warranty
Home insurance is purchased to protect your home and personal items from unexpected events that may be financially impactful and are outlined in an insurance policy.1 From natural disasters to theft, there are a number of potential hazards to protect yourself and your loved ones from.
Alternatively, home warranties are used to protect home appliances and systems when they break down or stop functioning properly. The intention is to be able to repair or replace the item using a warranty instead of paying for it outright.
According to the Canadian Home Builder’s Association, builders developing new housing structures must offer a third-party home warranty in British Columbia, Alberta, Ontario and Quebec. Builders in any other part of Canada, however, may choose whether or not to offer a home warranty.2 Additionally, some lenders, like the Canada Mortgage and Housing Corporation, require new home builders to belong to a warranty program - this is typically for those taking out a high-ratio mortgage.
Coverage and Cost
The structure of your home, personal belongings and personal liability will generally be covered by home insurance. In some cases, policies may protect home appliances in instances outlined in the policy. More often, these assets won’t be covered from normal wear and tear.1
In the case of breakdowns or general use, home appliances can be protected by home warranties. For example, an oven may stop working soon after a home has been purchased. In this case, a home warranty would help pay to fix or replace it.
Depending on the specific product offered and company involved, the cost of both home insurance and warranties can vary. Usually, the more comprehensive the coverage, the more expensive it will be for the homeowner.
Submitting a Claim
This can usually be done online or over the phone. Many home warranties require a claim to be filed within a certain time frame in order to remain eligible for coverage. Be sure to check the details of your warranty for associated details.
Mortgage lenders often require the homeowner to have insurance prior to the lender approving their mortgage.1 Alternatively, home warranties are not usually required by lenders.
There are coverage limits associated with both home insurance policies and home warranties. These will be clearly outlined when you purchase your policy or warranty.
Lowering the Cost of Coverage
There are a number of options to lower the cost of your home insurance and home warranty coverage. Companies will often have a variety of tiers to choose from so that you, as a homeowner, can decide on the amount of coverage that is right for you.
You may also qualify for discounts by choosing options such as online billing or maintaining good credit history. Be sure to check with the company you’re working with to see what discounts are available.
Another way to lower the cost of your coverage is to raise the associated deductible. In general, the higher the deductible, the lower the cost of coverage will be.3
Understanding the Key Differences
Both home insurance and home warranties offer protection for different instances, and it’s important to understand the variations between the two. At the end of the day, receiving the best coverage for your circumstances is critical.
If you’re asking yourself whether a home warranty is worth the cost and conversation, the first thing you should do is read the fine print in your home insurance policy. Taking a close look at the details will help you determine if there are any gaps in your coverage that need to be addressed with warranty.