Difference Between Home Insurance and Home Warranty

Written by Posted On Tuesday, 17 October 2017 19:48

Like many first time home buyers, I was unaware of the difference between a home warranty and homeowner's insurance. Now, years later as I help clients buy homes, I understand why they are different, and why both can be indispensable. The best way to describe home insurance and a home warranty is to compare them to a car purchase.

When purchasing a car you are required to have insurance on the vehicle. This protects you financially if anything were to happen to the car. The same thing is true with a home insurance. If the home were to experience damage that is covered by the insurance company (for example a fire), you would be compensated by the insurance company. A home warranty, on the other hand, provides a guarantee for certain parts of the home.

When you buy a vehicle with a warranty, the dealer is guaranteeing that certain parts of the vehicle will not break while the vehicle is under warranty. If a part does break while under warranty, the dealer will pay to have the problem fixed.  The same is true of a home warranty. If you have a home warranty, the home warranty company will pay to fix anything that is covered by the warranty (for example the air conditioner). This can relieve a lot of stress for home buyers.

Down the road, many home buyers decide to let the home warranty lapse. This makes sense once you are familiar with your home, the status of its equipment and have the necessary funds saved for repairs. However, for many, it is prudent to keep indefinitely the home warranty thereby transferring the future risk of a large out of pocket expense to a warranty company.

Homeowner’s insurance and a home warranty may sound very similar, but they are two very different products. Insurance protects the buyer from a catastrophic loss. A warranty protects specific aspects of a home. You never hope to need either but are thankful for the protection they provide.

John Jennings, III

BRE# 01982171

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Johnny Jennings

Johnny Jennings is a real estate broker and serves the greater Sacramento area. He currently serves as Chairman of the Education Committee with a local association of Realtors. His strengths involve marketing and networking. He also coaches agents nationwide.


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