Warranty vs. Insurance: What is the Difference?
Warranty protects customers when a product prematurely breaks down, which gives them the right to return the products for repairs or ask for a refund of their money, usually within a stipulated time. Meanwhile, insurance covers customers from unexpected events when they pay a company a fee to provide coverage from the risk of financial loss. Is warranty and insurance the same thing? No, they are not, even though they may operate similarly since they both provide coverage for replacement or repair. Both are essential protections to have; however, they do not offer the same protection. Let's break down some of the differences between warranty and insurance:
- Warranty covers mechanical failures in your car while insurance protects you against perils like accidents and theft.
- Warranty covers the cost of repairing or replacing home appliances or systems, while insurance pays for damage that may have been done to the home by forces like fire and even vandalism.
- Warranty covers the repair or replacement of defects in construction materials or construction systems. In contrast, insurance will cover construction flaws like medical expenses and legal costs claims from bodily or property damage.
Warranty and insurance are, in reality, both important as they are complementary and not competitive. It is advisable to be fully covered by both so that you have complete protection against any kind of risk or damage to your possessions.
What Does Warranty Mean in Texas?
In Texas, a warranty is a promise from the manufacturer to the product purchaser that the product will work as described for a certain time, usually between one to two years. If the product does not meet the given assurances, the manufacturer becomes responsible for repairing or replacing the item. Warranty usually applies to tangible objects like appliances, machines, and electronic equipment. So, for example, if your refrigerator breaks before the warranty period expires, the manufacturer or the seller of this fridge becomes liable for repairs or replacement, according to what the given warranty actually promised.
Although the words warranty and guarantee are very similar, there is a difference between the use of the two. The significant difference is that guarantee is a promise that the quality of the product or service is up to standard, and if it is below the specified quality, the manufacturer can repair, replace or refund your money. Meanwhile, a warranty is a formal and written assurance that the facts in the product specification are genuine. To simplify this, a warranty is more specific, while a guarantee is more general.
In insurance, a warranty is a promise to fulfill the certain promised duty to another party. This is very important in insurance plans and insurance providers expect you to make certain warranties when purchasing insurance policies. For instance, if you are purchasing a health insurance policy, you are expected to declare if you smoke or suffer from a terminal disease. If the warranty you make turns out untrue, the insurance provider has the right to cancel the policy and refuse to cover any claim you may have. The prospective insured, seeking coverage, warranties the information they provide on the application as correct.
In another example, a business owner might be required by a 3rd party lender to provide a written promise (warranty), in which the business promises to obtain and maintain insurance coverage on the financed property, at least until the loan is paid off.
Warranty Insurance in Texas
Insurance companies also provide a type of insurance called warranty insurance. Warranty insurance is a type of plan that makes an insurance company liable for repairing or replacing equipment like machines, systems and other product parts in exchange for you paying the agreed premium. So, when your refrigerator breaks down after the expiration (or in the absence) of the manufacturer’s warranty, you can rest assured that your warranty insurance will cover you. There are different types of insurance warranty, and they include but are not limited to:
Builders home warranty insurance provides you coverage when you are building a house in Texas from circumstances where you have trouble with work that's been done or about to be done by your contracted builder. What does the builder's warranty insurance cover? It usually provides compensation coverage to homeowners for losses incurred if their contracted builders die, disappear, get deregistered, go out of business, or simply go bankrupt.
Car warranty insurance car warranty is a vehicle service contract where the provider agrees to fix broken down parts due to defects in the manufacturer’s design or the installation. Car or auto warranty and auto insurance are not the same because only one of them is required by law - auto insurance. Also, car warranties only cover repairs to mechanical parts of the vehicle and will not provide coverage for collision or liability like an auto insurance policy would. Some auto insurance policy coverage can be extended to cover damages to mechanical parts of the vehicle, but no car warranty exists that provides full and comprehensive coverage to the vehicle.
Home warranty insurance is a residential service contract that provides coverage for repairs or replacement costs of home appliances and systems when they break down or become unstable due to mechanical failure. Just be careful not to confuse home warranty with homeowner’s insurance even though they operate in similar ways.
Both are insurance plans with a valid contract between the insured (you) and the insurer . The main difference between these two is that coverage provisions for risk to be covered are not the same. However, as a homeowner, you need both homeowners insurance and home warranty insurance to protect the building structure and the home’s systems and appliances. They work together to give you optimum protection of every part of your home. So the two may have separate coverage, but together they can provide complete coverage. The Texas Department of Licensing & Regulation regulates the activities of home warranty providers.
Another type is business warranty which would cover the repair of systems, equipment, machines used in the day to day running of the business. You may be wondering, is insurance better than warranty? The answer is no because they both serve different purposes and you may need to choose both since they both offer peace of mind. Insurance takes care of accidental damages while the warranty takes care of faulty parts of products.
What is the Purpose of Home Warranty Insurance in Texas?
The primary purpose of home warranty insurance is to offer coverage on items that your homeowner’s insurance does not cover. In Texas, home warranty insurance covers the service, repair, or replacement of significant home appliances and systems. With home warranty insurance, homeowners get help with unexpected costs when their home appliances or systems break down. It also helps you mitigate the risk of incurring major out-of-pocket expenses.
Home warranty vs homeowners insurance
When considering home warranty vs homeowners insurance, it is important to note that even though home warranties sound like homeowners insurance, they are not the same. When you purchase a home warranty, it is optional, and it applies to only your home appliances, systems, and possibly the quality of the builder’s work. On the other hand, Homeowners insurance is legally required in a mortgage so that you can pay a premium that will cover your home structure in case of extensive or structural damage. Homeowners’ insurance policy also provides coverage to personal belongings like your furniture, clothes, and jewelry in the event of a loss or damage due to storm, fire, and theft. Homeowners insurance provides liability coverage for injuries to guests on your property. Meanwhile, home warranty insurance supplements this by providing coverage through repairing or replacing your covered appliances and home systems.
Another benefit home warranty has over homeowners insurance is that it can be transferred from one owner to the other meanwhile you cannot transfer homeowners insurance from one person to another.
The primary similarity between a home warranty and homeowners insurance is that both require you to pay a monthly, quarterly, or yearly premium. However, homeowners insurance policy premium tends to be higher than a home warranty insurance policy. This is because the insurance provider takes on more risk under homeowners insurance. Home warranty insurance does not require you to pay deductibles, unlike homeowners insurance; instead, you are charged a service call fee. All mortgage companies require that you purchase a homeowner insurance policy for the financed property while purchasing a home warranty is purely optional.
Texans who own homes see it as a significant investment, and protecting such assets is the most reasonable thing to do. The best way to provide protection coverage for their home and items is to purchase a homeowner insurance policy and use home warranty insurance to supplement areas where insurance does not protect.
Read more about residential insurance.
Now you may ask yourself, is home warranty worth it? The answer depends on your specific circumstances. You have to decide for yourself, by checking out the pros and cons of a home warranty:
PROs of Home Warranty
- A home warranty helps you cover the cost of repairs of expensive home appliances and systems when they break down.
- It is quite inexpensive to purchase. An average Texas home warranty costs less than $100 per month.
- It relieves you of the burden of wasting time collecting different contractor service quotes or trying the DIY method.
CONs of Home Warranty
- There is usually a set coverage limit per repair or per year, depending on the service provider.
- Each time you use the warranty, you must pay a service call fee that averages between $50 to $75.
- Unscrupulous home warranty providers may try to get away with extensive repairs at the time when a full replacement may be more warranted.
While home insurance offers extensive coverage, it usually has some gaps in its policies, so to ensure you are not financially surprised, you may want to consider getting both the home warranty and homeowner insurance policy. A home warranty can help you with unexpected costs when your home appliance or home systems break down. So when a pipe bursts in your house, your home warranty insurance policy covers the cost to repair the pipe, while the homeowners’ insurance will cover the significant damage caused by the pipe.
What Does Texas Home Warranty Insurance Cover?
In Texas, a basic home warranty generally provides coverage for household appliances and systems. The home warranty coverage you may need depends on the type of policy you buy and your budget. Most of the warranty plans in Texas offer you the opportunity to customize to your taste; for instance, you may choose to provide coverage to both home appliances and systems or just your home appliances. When purchasing a home warranty insurance policy, you have the option of covering some or all the following:
Systems:
- Electrical system
- Heating
- Plumbing systems
- Water heater
- Ductwork
Appliances:
- HVAC units
- Dishwasher
- Garage door opener
- Garbage disposal
- Swimming pool
- Hot tub
- Oven, range, or cooktop
- Refrigerator
- Spa equipment
What Does Texas Home Warranty Insurance Not Cover?
When purchasing a home warranty insurance policy in Texas, you must ensure you review the plan to understand what is not covered. This is also known as the exclusions. The home warranty does not provide coverage for every part and component of a covered device. Some of the exclusions you may see in a home warranty insurance policy are:
- Detachable components
- Magnetic induction cooktop
- Pans
- Runner guards
- Door glass
- Drawers
- Filters
- Sensi-heat burners
- Shelves
- Outside or underground piping
Another important thing for you to note is that the coverage amount is limited. So, if your appliance malfunction exceeds this coverage amount, you will have to pay out-of-pocket.
How Much Does Home Warranty Insurance Cost in Texas?
What is the cost of a home warranty in Texas? The average cost of a home warranty insurance in Texas is $300–$745 a year. Home appliances warranty coverage for HVAC, heating, and plumbing usually costs more than basic home appliances. Your contract may provide that you pay your premium upfront or be billed monthly. Another thing you will need to pay is the service fee which you pay to the service contractor. The average cost of a home warranty insurance service fee ranges from $50-$125, and each time you file a claim with the insurance provider, you are responsible for paying the service fee . When purchasing a home warranty policy, you also have the opportunity to add optional appliances that are normally part of the coverage Typically, home warranty insurance providers don't deem items like wine coolers risky enough to be included in the main coverage. So if you have appliances like this, you will be looking at paying for add-ons that have an average cost of $35 to $400.
So, the question now is do I need to purchase a home warranty? You can do this by doing an informal cost benefit analysis by weighing potential cost of repair against the home warranty premium costs. Also, put into consideration the age of your home appliances and systems. And on top of it all, if you decide to purchase home warranty, pay attention to the details in your contract.
Home insurance warranties (such as Home Appliance Warranty) alleviate the financial stress associated with the cost of repairs that may occur unexpectedly. To choose the right home warranty, you must research your cost options and the insurance provider. You can compare the insurance providers’ plans, coverage & pricing, service fee, and customer reviews. Also you can conduct personal research or consult with a state-licensed insurance agent to help choose the right home warranty insurance policy. Texans can also find out the premium cost of home warranty insurance providers through online quotes to give you options on coverage within your budget.
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