Home Warranty vs. Home Insurance: What to Know

Insurance Guides Homeowner Insurance Home Warranty vs. Home Insurance: What to Know

Both home insurance policies and home warranties have a place in protecting your property. The primary difference between a home warranty and home insurance is that a home warranty protects major home systems and appliances from mechanical breakdowns due to age and wear and tear. In contrast, home insurance protects your home and property from covered losses, like damage from a fire or storm.

Key Takeaways

Home warranties protect your home systems and appliances from age, wear, and tear.
Homeowners insurance covers losses you may experience from certain covered events, like theft or storm damage.
Home warranties aren’t required but can be beneficial, particularly to new home buyers.
Homeowners should carefully consider the pros and cons of home warranties before purchasing.
The biggest benefit of both home warranties and home insurance is peace of mind.

Overview: Home Warranty vs. Home Insurance

While there are many similarities between home warranty plans and home insurance, understanding their differences and how each applies to your home protection is essential. Coverage, cost, and other factors vary widely between these two very different home protections.

	Home Warranty	Home Insurance
What It Covers	Repair or replacement of appliances and home systems after normal wear and tear	Property damage, liability, and losses resulting from covered events such as storms, theft, or fire
Average Cost	$420-$1,070 annually	$2,522 annually
Average Deductible or Service Fee	Service fee of $50 to $125 per call	Deductible of $500 to $2,500 per coverage period
Typical Contract Length	1-2 years with possible renewal	Annual policy periods
Common Coverage Add-Ons	Coverage for pools/spas, septic systems, electronics	Endorsements for sinkholes, earthquakes, increased coverage limits
Claims Process	Document damage, Verify coverage, file claim, schedule service visit, pay service fees	Document damage, make temporary repairs, file claim, schedule inspections or estimates, get approval from adjuster, complete repairs
Is It Required?	No	Only if you have a mortgage
Who Should Get It?	Homeowners with older appliances or systems	All homeowners

What Is a Home Warranty?

A home warranty is a contract between you and the warranty company that protects appliances and other home systems as they age.

This contract is initially designed to expire after 1 to 2 years but is often renewable, with costs ranging from $420 on the low end to a little over $1,000 for more comprehensive home warranties. While this may sound much like homeowners insurance, there are some very distinctive differences.

A home warranty covers appliances and major home systems that break down due to age, wear and tear, and other causes of loss that are explicitly excluded from homeowners insurance. Items often covered by home warranties include:

HVAC systems/air conditioning systems
Electric systems
Water heater
Toilets
Sump pumps
Garbage disposals
Oven
Washer
Dryer
Stove
Refrigerator
Microwave
Dishwasher

Home warranties are particularly appealing to new homeowners who have limited knowledge of existing appliances and mechanical systems, like plumbing systems, and who want to avoid incurring the potentially large expense of a failing major home appliance along with a new mortgage payment.

Do I Need a Home Warranty?

All homeowners can feel more at ease with a home warranty than without one. However, some people may want to carefully consider the potential savings related to a home warranty when deciding whether to purchase one.

If you’re new to home ownership, don’t have the savings for unexpected repairs, or prefer to know the cost of a home warranty to the unknown costs related to home systems or major appliance breakdowns, you may benefit from the peace of mind afforded by home warranties.

What Is Home Insurance?

Home insurance is a contract between you and an insurance company. Homeowners pay a premium in exchange for protection against certain losses, subject to the terms and conditions of the contract. The cost of a homeowners insurance policy varies by state, home, and individual. However, the average homeowners insurance premium is around $2,500 annually.

Homeowners insurance provides financial protection for a wide range of potential losses to your home’s structure and personal belongings, including fire, water, wind, vandalism, theft, and other perils.

It also provides liability coverage for losses related to your property that result in legal liability. Additionally, home insurance covers medical payments for injuries, additional living expenses, and coverage for living elsewhere when your home is uninhabitable due to a covered loss.

Do I Need Home Insurance?

Your home is one of your most significant assets. Protecting your home from the unexpected is a wise financial decision. In addition, if you have a mortgage, it is a necessary one. Mortgage lenders require you to carry homeowner insurance as part of their mortgage loan contract.

When Do You Need a Home Warranty vs. Home Insurance?

Home insurance is designed to protect your home from a qualifying event that could cause substantial damage, including total destruction, of your home. Home insurance is mandated if you have a mortgage and crucial asset protection even if you don’t.

A home warranty provides practical protection against the failure of major home systems due to age or normal wear and tear, which can severely damage a homeowner's budget.

Pros and Cons of a Home Warranty and Home Insurance

Both homeowners insurance and home warranties have pros and cons. Understanding the purpose and intricacies of each can prevent uncovered losses or unexpected costs.

Home Warranty: Pros and Cons

It’s crucial to understand how home warranties work before investing in a home warranty that may not meet your needs. Here are some of the key advantages and disadvantages of home warranties:

Pros of home warranties

Manufacturer warranty replacement. Home warranties provide many of the same benefits as a manufacturer’s warranty long after it expires.
Sheltering of savings. You can help preserve their long-term savings by not paying entirely out-of-pocket for future expenses, repairs, or home systems and appliance replacements.
Buffer of protection. New homeowners may be unable to immediately replace outdated appliances, so home warranties offer a buffer of protection until they can.
Flexibility. Home warranty options give you choices on the protections you want.
Peace of mind. Home systems and appliances are vital to your day-to-day needs. Home warranties provide confidence that vital components can be repaired or replaced quickly.

Cons of home warranties

Lack of use: You could pay for a home warranty and never need to use it.
Exclusions: Pre-existing conditions, code violations, improper maintenance, and other exclusions in the fine print could prevent your home warranty from being paid out.
Not comprehensive: A home warranty does not automatically cover every appliance or home system.
Choice of service providers: Home warranty companies often require you to use their approved service providers as part of their service contracts.
Service call costs: Most home warranties charge a flat fee for service calls, which can add up quickly.

Home Insurance: Pros and Cons

Homeowners insurance protects your home from losses. However, it is not all-encompassing in coverage. Understanding the pros and cons of homeowners insurance will help you determine how to fill the gap.

Pros of home insurance

Wide-ranging protection: Homeowners insurance covers the significant perils that can impact a home and personal property, paying for damages that would be unrecoverable for most homeowners, including liability risks.
Low deductibles: While homeowners' deductibles may seem high for smaller losses, even $2,500 can be relatively small when facing major losses totaling tens of thousands or more.
Customizable: Homeowners policies often offer added or increased types of coverage through endorsement options and coverage limit choices.

Cons of home insurance

Cost: Homeowners insurance premiums continue to increase, making it more difficult for homeowners to meet other expenses.
Exclusions: There are many causes of loss not covered by homeowners insurance, including floods, acts of war, explosions, neglect, earth movement, sinkholes, and other natural disasters. Some of these may be protected if you have additional insurance policies or endorsements.
Limits: Each coverage on a homeowners policy has a maximum amount it will pay out. Any additional costs are your responsibility.

How to Choose Between a Home Warranty and Home Insurance

Choosing between a home warranty and home insurance depends on what you are trying to protect. Home insurance is much more comprehensive than a home warranty, offering replacement costs for many home repairs. However, a home warranty covers some causes of loss explicitly excluded by homeowners insurance.

Your home’s age, value of your appliances, desired covered items, and budget for repairs should be factored into your decision to purchase a home warranty. However, home insurance is required for homes with a mortgage and provides comprehensive coverage for larger losses.

Can You Have Both a Warranty and Insurance?

Since homeowners insurance and home warranties cover different perils, many homeowners choose to have both. Here’s an example of how homeowners insurance and home warranties can work together:

Let’s say your water heater malfunctions, resulting in water damage. In this case, homeowners insurance would cover the water damage, and the home warranty would repair or replace the water heater, subject to the terms and conditions of both.

FAQ: Home Warranty vs. Home Insurance

Is a home warranty the same as home insurance?

Home warranties and home insurance provide very different protections offered by different providers. Homeowners insurance offers coverage for damages that result from perils like fires or thefts, while home warranties protect your appliances from wear and tear.

Do I need a home warranty if I have home insurance?

If you want protection from age and normal wear and tear of your major systems and appliances and the perils covered by your homeowners insurance, you will need both a home warranty and home insurance.

Is a home warranty required?

Homeowners insurance is required if you have a mortgage on your home. Home warranties are optional.

What are the cons of a home warranty?

Home warranties may have exclusions, coverage limits, and service fees, and they do not allow you to choose your preferred service provider. Plus, you might never have to use a home warranty.

What is the biggest benefit of a home warranty?

Home warranties provide peace of mind that you will not have to shoulder the burden of major home systems or appliance breakdown and associated costs alone.

Article written by Shawnette Good.

Shawnette is an insurance professional with 30 years of industry experience helping consumers understand complex insurance topics. Outside of writing, Shawnette enjoys long nature walks and volunteering in her community.