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The Difference Between a Home Warranty & Homeowners Insurance

Home ownership is poised to be more popular than ever in 2016, as Realtor.com economists predict total sales for existing and new homes will reach 6 million for the first time since 2006.

New home purchases increased substantially year over year from 2014 to 2015, as sales of new homes grew from 437,000 in 2014 to 501,000 in 2015, according to the U.S. Census Bureau. Even CNN calls 2016 "the year to buy a home," citing the slowing of home price increases, more new home choices and high rent fees as reasons why purchasing a home makes financial sense.

For those who are becoming homeowners for the first time, understanding the difference between home warranty coverage and homeowners insurance is crucial. Learn what each means to determine what's right for you.

Home Warranty Basics

Nothing can sour the excitement of a new home more than the dishwasher or washing machine breaking down. Large home appliances are vital to a happy, functional home — who wants to have to rely on neighbors or family for help, or travel to a laundromat to do basic chores?

As TotalProtect Home Warranty explains [1], a home warranty provides financial coverage for a home's expensive appliances and systems, such stoves, ovens, plumbing and electrical and HVAC systems. When mechanical issues arise, instead of paying for repair or replacement of the system, the person covered by a home warranty just pays the deductible instead.

Homeowners Insurance Explained

Unlike a home warranty, homeowners insurance does not provide coverage for large appliances or home systems (think electrical, plumbing, heat and AC, etc.) that may malfunction or break down inside the home. As Bankrate explains [2], homeowners insurance provides coverage for unexpected damage due to environmental catastrophes, such as earthquakes, flooding and fires.

Homeowners insurance also covers the loss of property (for everything from jewelry to costly technology) due to theft. Additionally, homeowners insurance covers you for any injuries or property damage you or members of your family (including pets) cause other people.

Which Is Right for Me?

Both give you peace of mind and reduce worry about negative unforeseen events. If you paid less than 20 percent of your home's purchase price as the down payment, your mortgage company will require homeowners insurance; they are protecting their investment. Buying a home warranty is usually smart, but it's not mandatory.

When considering purchasing a home warranty, think about the needs of you and your family and the value of your time. For homes with children, for example, getting a refrigerator or washing machine quickly fixed so that dinner can still be made and clothes can be washed without a problem may be an indispensable need. For those with busy lifestyles, having the security of a home warranty lets homeowners focus on other things without having to stress about the means to repair an appliance should it break. Usually, the cost of a whole year of coverage pays for itself after one major appliance or home system fails.

Home warranties and homeowners insurance are significant factors in home ownership and should be thoroughly examined by any homeowner. Carefully consider the needs and value of your home and what's in it to make a thoughtful decision about the best type of coverage for you and your family.

[1] www.totalprotect.com/what-is-a-home-warranty

[2] www.bankrate.com/finance/insurance/things-home-insurance-wont-cover-1.aspx

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