Owning a home is one of the greatest investments you'll make in your life. Protecting your assets is not just smart—it's integral. The best way to do this is to purchase both a homeowners insurance policy and a home warranty plan. Purchasing both will cover your home, belongings, appliances and system components in case they need replacement or repair. But understanding the differences between the two products and why you need them can be tricky.
How Is a Home Warranty Different from Homeowners Insurance?
The main difference between a home warranty plan or home service plan and homeowners insurance is quite simple: homeowners insurance typically protects your home from events like fire, smoke, theft, fallen trees, or damage caused by weather, while a home warranty plan covers the cost to repair or replace parts of home appliances and systems that break down over time. It essentially protects your budget when covered appliances and home systems components break down due to normal wear and tear. The protection of a home warranty plan can potentially save you hundreds or even thousands of out-of-pocket dollars, not to mention the headache of finding a trusted service contractor to make the repairs. For American Home Shield members, a home warranty — or as we like to call it, a home service plan — includes member-exclusive pricing on home maintenance services, new appliances, and a variety of home services from tech installation and setup to pre-season HVAC tune-ups, and more. We provide plans for people who have systems and appliances they'd like to keep in working order while also protecting their budget.
|Home Warranty covers things that will happen||Homeowners Insurance covers things that might happen|
|HVAC Stops Working||Theft|
|Water Leaks||Fire Damage|
|Dishwasher Stops Working||Storm Damage|
What Is Homeowners Insurance?
As mentioned, a home insurance policy covers any accidental damage to your home and belongings due to theft, storms, fires, and some natural disasters. There are four primary areas covered under the policy: the interior and exterior of your home, personal property in case of theft, loss or damage, and general liability that can arise when a person is injured while on your property.
A home insurance policy is usually mandatory, and a bank will generally require you to obtain one before issuing a mortgage on a home. A policy is renewed yearly, and its average annual cost is between $300 and $1000. All home insurance policies offer a deductible, which is what you'll pay when a claim is made. The policy will then take care of any additional costs.
So for instance, say a pipe breaks and floods your kitchen. An insurance adjuster will come to your home and fill out a claim for repair and replacement of any damaged items in your home. Once the claim is approved, the insurance company will deduct the amount of your deductible and issue you a payment for the rest of balance to repair your home. This deductible can also assist in lowering your yearly policy premium. The higher your deductible, the lower your yearly home insurance policy will cost. For more information on homeowners insurance, the National Association of Insurance Commissioners is a terrific resource.
What Is a Home Warranty?
A home service plan is a service contract that provides for repair or replacement of major components of your systems and appliances that fail due to age and standard wear and tear. For instance, components of your HVAC, electrical, and plumbing, kitchen appliances and washer/dryer are all typically covered under this home service plan. You can also cover larger systems like your pool and spa.
Home service plans typically have 12-month contract terms and are not mandatory to obtain a mortgage. A home service plan is purely elective, but it’s a smart purchase. Home service plans can be purchased for around $50-$75 per month, with add-on coverage for items like roof leak repair or pools and spas available for an additional cost.
Let's say your HVAC system stops working. In that case, a qualified, independent service contractor will be assigned to assess the problem. If it's determined that the system is no longer working because of age or wear and tear, and the breakdown is covered under the terms of your service contract, the repair professional will make the repair, or if necessary, replace the appliance or system component for just the cost of your service call. A one-time service call costs either $75, $100, or $125 based on the amount you choose in advance when you become a member, and American Home Shield pays the remaining amount for the repair or replacement based on the plan that you have selected. The protection of a home service plan can save you hundreds or even thousands of out-of-pocket dollars, as well as the headache of finding a trusted service contractor to make the repairs.
Let’s face it: life happens and things breakdown. When they do, a home service plan from American Home Shield® can make it easier to get a qualified contractor on the case while keeping your budget protected.