Home warranty vs. home insurance
Differences in coverage, costs and requirements
Home warranties and home insurance are both meant to protect you from the financial strain of paying for unexpected costs at home. However, there are differences in what they cover and how they work.
A home warranty doesn’t replace an insurance policy — it covers different kinds of problems. Instead of paying out after a disaster that damages the physical structure of your home or your personal belongings, warranties cover breakdowns of home systems and appliances caused by regular, everyday use. In a sense, home warranties and insurance complement each other. But not everybody needs both.
What is the difference between a home warranty and home insurance?
A home warranty is technically a “service contract,” which isn’t the same as an insurance policy.
A home insurer compensates you for harm or loss if your physical property or personal belongings are damaged or lost after a covered event, like a fire; a home warranty company pays for repairs or replacements when a covered system or appliance fails from normal use.
Think of it this way: Insurance pays to fix your roof if a tree falls on it during a storm. A warranty pays to repair roof leaks caused by normal wear and tear (if you have roof coverage on your plan — not all providers offer this).
| Home warranty | Homeowners insurance |
|---|---|
| Covers home appliances and major systems | Covers structure of your house, personal property and liability |
| Pays for repairs and replacements | Pays for damages, loss and liability |
| Applies to failure caused by normal wear and tear | Applies to damage and loss caused by natural disasters, fires, theft, vandalism and accidents |
| Always optional | Often mandatory |
About home warranties
A home warranty is a service contract that pays to repair or replace essential home systems and appliances when they malfunction due to normal wear and tear.
The average comprehensive home warranty costs around $600 per year.
Most new appliances and systems come with a warranty from the manufacturer. A home warranty provides coverage after it expires, similar to an extended car warranty.
For the length of the contract agreement (often one year), the warranty company is obligated to cover household items according to the terms. When a covered system or appliance breaks down, you notify the home warranty company, and it sends a local contractor to your home in exchange for a service call fee. The contractor diagnoses the problem; if it is covered, the warranty company pays for the repair or replacement.
Some home warranty companies let you choose your own licensed service technician, but most assign a contractor from their networks. This is because providers usually have agreements with specific contractors to get discounts on labor.
What it covers
Coverage varies by plan and provider, but the following items are typically covered by home warranty companies:
- Air conditioner
- Heating system
- Ductwork
- Electrical system
- Plumbing
- Water heater
- Garbage disposal
- Refrigerator
- Range, oven and cooktop
- Clothes washer and dryer
- Dishwasher
- Built-in microwave
- Ceiling fan
- Garage door opener
A home warranty plan covers specific components of appliances and systems — not necessarily each and every part. The home warranty contract states exactly which components are excluded.
Most of the top home warranty companies offer roof leak protection and optional coverage for items such as sump pumps and pools.
How much it costs
The average comprehensive home warranty costs around $50 per month ($600 per year). In addition to the monthly rate, you pay a service call fee each time a technician is called out to your house. The fee is usually between $55 and $150. If the item is covered, the warranty company pays 100% of the cost for repair or replacement.
What is homeowners insurance?
Homeowners insurance pays for costs associated with loss or damage from natural disasters, fires, theft and vandalism, which are referred to as “perils.”
A homeowners insurance policy has coverage for both your home’s structure and your belongings inside. You can get a policy that covers the costs to rebuild or replace your house completely.
A policy also protects you from financial liability as a homeowner in case you’re responsible for injury or damage to someone else’s property. For example, if somebody is injured on your property, your policy could cover the resulting legal or medical expenses.
What it covers
Standard home insurance policies cover the physical structure of your house and your belongings. These coverages are typically bundled with liability and additional living expenses coverage. According to the National Association of Insurance Commissioners, the most common coverage types are:
- Dwelling
- Other structures
- Personal property
- Loss of use
- Personal liability
- Medical payments
- Flood insurance
- Earthquake insurance
- Sewer backup
- Personal umbrella liability
Homeowners insurance covers appliances if they are damaged in an event covered by your policy, such as fire or theft. Policies sometimes include coverage for roof leaks, plumbing issues and dog bites, but not always.
Take a home inventory to calculate how much coverage you need. This amount is usually between 50% and 70% of the amount of dwelling coverage you have, according to the Insurance Information Institute.
A policy can cover other structures (gazebo or tool shed, for example) for around 10% of the amount of coverage you have on the house, the Insurance Information Institute says.
Some home insurance companies cover mold or foundational repair, but termite damage is rarely included. Compare top-rated providers on coverage options to find the right home insurance policy for you.
How much it costs
On average, the most common type of home insurance policy costs $1,249 per year.
On average, homeowners insurance costs $1,249 per year for an HO-3 policy (the most common type), according to the latest numbers from the NAIC.
The amount of coverage you need depends on how much your home would cost to replace. How much you pay each month depends on several factors, including the location of your home, the home type, your claims history, your deductible and your credit history. Whether you have a dog, swimming pool or trampoline can also affect the rate.
Bundling home and auto policies with the same provider is just one of the ways to save money on home insurance. If you’re comparing quotes that seem too high, consider raising your deductible or asking about discounts. Companies often give discounts for switching from a different insurer, being claim-free and setting up automatic payments. You can also usually get a discount for installing a monitored security system.
Frequently asked questions
- Do you have to have homeowners insurance?
Though it’s technically legal to own a house without homeowners insurance, most mortgage lenders require it. Depending on where you live, your lender might also require flood insurance or earthquake insurance. Home insurance is also needed if you have a reverse mortgage or home equity loan.
You can get rid of home insurance once you pay off your mortgage, but it’s often smart to keep it. “Having a catastrophic weather event burst the pipes in your house when you're 3,000 miles away is a pretty terrible feeling,” one recent Lemonade home insurance reviewer in Seattle said. With a good home insurance provider, you'll receive help with these types of unexpected problems.
Another reviewer in Houston said, “Pipes in our garage attic had burst, damaging the ceiling of the garage and of the (adjacent) dining room. Water had gotten everywhere and we had had trouble getting the water shut off so we didn't know if we would carry some blame or if insurance would find a way to not cover fully.”
The damage was covered, and Lemonade “coordinated the demo of our ceilings and immediately sent funds when I got a contractor estimate for the repair.”
- Do I need a home warranty?
A home warranty is never required, but it might be a good idea. If your heater is destroyed in a house fire, homeowners insurance protects you from that financial loss. On the other hand, it won’t pay for the repair or replacement of your heater if it stops working because it’s old.
A good warranty plan will pay for the most common repairs that homeowners have to make: plumbing, air conditioning, refrigerators, heating systems and smoke detectors.
When something goes wrong, you submit a claim if a covered item needs to be repaired or replaced. The company then sends out a technician to evaluate the problem.
“The techs came out, and then they fixed the plumbing issue. It costs 70 bucks, which was great,” a reviewer in Spring, Texas, said about American Home Shield.
“When you have something as critical as no hot water or your plumbing is out, it needs to be some type of emergency service,” another recent American Home Shield reviewer from Fairburn, Georgia, said.
- Is a home warranty the same as home insurance?
No, a home warranty is not the same as home insurance. A home warranty covers breakdowns to household systems and appliances from wear and tear; homeowners insurance covers the physical structure of your property and your belongings if they are damaged in an event such as a fire. Overall, the differences are similar to those between an extended car warranty and auto insurance.
Bottom line
People often mix up a home warranty and home insurance. If you have a mortgage on your home, homeowners insurance is usually mandatory, while a home warranty is always optional.
- A home insurance policy covers your physical home and personal belongings in the event they are damaged or lost because of fire, natural disasters, theft or vandalism.
- A home warranty covers appliances and systems in your home when they break down from regular use.
For more, check out our home maintenance checklist or learn how to prevent expensive home repairs next.
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
- Insurance Information Institute, “What is covered by standard homeowners insurance?” Accessed Oct. 26, 2021.
- National Association of Insurance Commissioners (NAIC). “Homeowners Insurance.” Accessed Oct. 26, 2021.
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