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  • Writer's pictureDoron Yaniv

Do I Need a Home Warranty or Homeowners Insurance?

Owning a home is one of the most significant investments you will ever 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 homeowner’s insurance policy and a home warranty. Keep in mind that you are only obligated by the mortgage company to have homeowners insurance before you close on your new home. This needs to be maintained as long as you carry a mortgage. A home warranty can be purchased at any time. Purchasing both will cover your home, belongings, appliances and system components in case they need replacement or repair. However, understanding the differences between the two products and why you need them can be tricky.

Breaking it all down:

What exactly is home insurance?

Homeowner’s insurance provides you with financial protection against disasters. It protects the house itself and everything in it, as well as provides liability coverage in case anyone injures themselves in your home or on your property. Getting homeowners insurance must happen before the close of escrow, and lenders will insist on it.

Okay, so, what's a home warranty?

A home warranty typically provides coverage for air conditioning units, heating furnaces, and other home appliances/systems like the oven or range if they fail due to normal wear and tear. Additional coverage can be purchased to cover a swimming pool and spa pumps. Note that coverage typically lasts only one year. It's common practice for a seller to pay for a home warranty, but a home warranty isn't always necessary. The new homeowner can purchase a home warranty at a later time. The mortgage company will not require them to buy a home warranty.

What does home insurance cover, and what is excluded?

Your policy covers both damage to your property and legal responsibility for any injuries you or your family cause to other people in the house.The structural protection usually includes damage or destruction due to fire and smoke, lightning,hail, the weight of snow or sleet, falling objects, water damage, vandalism or malicious mischief,explosion, damage from an aircraft, car or vehicle, or other disasters outlined in your home insurance policy. Always do an annual review with your agent to make sure you are adequately covered.

Most policies will not pay for damage caused by earthquakes, floods or lack of proper maintenance. It is entirely the homeowner’s responsibility to purchase a separate policy for earthquake and or flood insurance policy. Make sure detached buildings like garages and storage sheds are also included, even if that costs a little extra. A good rule of thumb is to buy enough coverage so you can rebuild your house if disaster strikes. Your personal belongings inside the home, including furniture, electronics, sports equipment, and clothes are covered for theft and other insured disasters, but high-end items like jewelry, art, and collectibles will require additional coverage (scheduled personal property coverage) if you want to insure them for their full appraised value.

Policy types: cash value vs. replacement cost

You have two choices when insuring your home and belongings. If you opt for “actual cash value,” you receive the amount of money needed to repair or replace your home after depreciation is factored in. With a “replacement cost” policy, your home will be restored to “like new” condition using materials of similar quality, without considering depreciation. If you have an older house with rare moldings and hard-to-find fixtures, you should insure your home for 80% to 90% of its replacement cost. The liability protection of your home insurance policy includes such accidents as someone slipping and falling on your driveway, or your dog biting a visitor in your living room. It covers you against lawsuits for bodily injury or property damage that you or your family members (and pets) cause to other people.

Additional types of home insurance coverage

In Washington, California, and Oregon your home insurer is legally required to offer you earthquake insurance at an additional cost.

Hint: Take it!

Other considerations, depending on where your dream home is located, such as the history of claims in your neighborhood and on your property, may make home insurance difficult to obtain; i.e., if you chose an area prone to wildfires or mudslides.

Earthquake insurance is available to you through your homeowners insurance policy or the California Earthquake Authority (CEA).

Deciding whether you need a home warranty is a less pressing matter, but if you're closing on a home or thinking about making an offer soon, it's important for you to find the right home insurance provider. Another important factor to consider is you find a Local Independent Insurance Agency and agent, that will shop many A, and A+ rated insurance companies for you and save you money in the process. They shop and you save!

Finding a home insurance provider

Need help finding the best insurance rates so you can save money and close your loan quickly? We here at All in One Insurance Group can help you compare up to 8 insurance options and get you a quote from A and A+ Rated Insurance Companies.

This article originally appeared on OpenListings.

Modified and updated by All in One Insurance Group

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