Understanding Homeowner's Insurance vs. Home Warranty: What Sellers and Buyers Need to Know

Homeowner's insurance and home warranties are different types of coverages related to your home, each providing protection for distinct types of risks and damages.

Homeowner's insurance generally covers damages or losses caused by unexpected incidents such as fires, storms, theft, and sometimes specific natural disasters. It extends to cover personal belongings within the house, including furniture, electronics, and clothing. Additionally, homeowner's insurance includes liability coverage, which can be beneficial if someone gets injured on your property and decides to sue.
On the other hand, home warranties are more akin to service contracts. They cover repairs or replacements of major systems and appliances in your home, like your HVAC system, electrical system, plumbing, refrigerator, or oven, when these items break down due to normal wear and tear or age.

The cost of homeowner's insurance typically exceeds that of a home warranty. The price can vary significantly based on your home's value, location, size, the amount of coverage you choose, and your chosen deductible.
In contrast, home warranties have a more predictable cost structure. They usually have an annual or monthly fee, and for every repair, there's a set service fee you need to pay.

If you're planning to take out a mortgage to buy a home, the lender will generally require you to have homeowner's insurance. This is to protect the lender's investment in your property.
Meanwhile, home warranties are optional. Homeowners often choose to get a home warranty for peace of mind. It can be particularly beneficial when buying an older home with appliances or systems that may be nearing the end of their lifespan.

Claim Process
With homeowner's insurance, you file a claim with your insurance company after a covered event occurs. The insurance company then assesses the damage, and if your claim is approved, they pay out the repair cost after subtracting your deductible.
With a home warranty, the process differs slightly. When a covered item breaks down, you request service from the warranty company. They then send a service technician to evaluate and fix the problem, charging you a fixed service fee.

Remember that these two types of coverage are not mutually exclusive. Depending on your specific circumstances and the age and condition of your home and its appliances, you may find it beneficial to have both a homeowner's insurance policy and a home warranty.

In our experience, we typically recommend sellers offer a home warranty to new homebuyers. This serves as a valuable selling point as it gives the buyer additional peace of mind. It can alleviate potential concerns about the state of appliances and the costs associated with any unexpected repairs that might arise after the purchase. Providing a home warranty can help to facilitate a smoother selling process by building confidence and trust between the seller and buyer. Both parties can feel secure in the knowledge that they are entering a transaction that's mutually beneficial and protected against unforeseen post-sale issues.

About the Author
Dar Mardan, a seasoned realtor at Pacific Sotheby's International Realty, is your guide to all things real estate in sunny Orange County. With an emphasis on informed decisions and an array of knowledge spanning real estate, tax strategies, trusts, and more. Dar alongside his talented wife, Vida, offer a comprehensive, personalized approach to serve clients' real estate needs.