Home warranty vs. home insurance
Differences in coverage, costs and requirements
Home warranties and home insurance both offer some form of protection for your property — but the similarities end there. A home warranty is a service contract covering costs to repair and replace certain systems and appliances that break down from normal use, while homeowners insurance covers damage and loss due to fire, lightning, theft and other events. Understanding this distinction will help you decide if you need one or both for your home.
Key insights
- Home warranties cover major systems and appliances when they break down from regular use.
- Insurance covers the physical structure of your property and your belongings if they’re damaged in an unexpected event, like a fire.
- Overall, the differences are similar to those between an extended car warranty and auto insurance.
What is the difference between home warranty and home insurance?
A home warranty is an optional contract between you (the homeowner) and your warranty company for coverage of repair or replacement costs when a home system or appliance malfunctions.
Home warranties are always optional.
Homeowners insurance is a policy that pays for damage and loss caused by outside forces such as fire and severe weather. If any of these “perils” destroy or damage your home or possessions, insurance will compensate you for your loss.
For example, if a big tree falls and crashes into your kitchen, a home insurance policy would pay to replace any damaged appliances.
“However, if your oven range quits working one day due to age, the cost to repair and replace it would not be covered through a home insurance policy,” according to Angel Conlin, chief insurance officer at Kin Insurance, a direct-to-consumer digital insurer based in Chicago.
| Home warranty | Home insurance | |
|---|---|---|
| Coverage | Repairs and replacements for appliances and major systems | Damages to and loss of your house’s structure and personal property, liability |
| Costs | $450-$1,400 per year | $846-$1,654 per year |
| Claims accepted | If failure is caused by normal wear and tear | If damage is caused by natural disasters or accidents |
| Requirement | Always optional | Mandatory with mortgage |
| More details | Read our guide | Read our guide |
Coverage
Home warranties do not replace home insurance. Instead, they pay for problems most homeowners face that home insurance doesn't address, like if your air conditioning breaks down or washing machine malfunctions, according to Conlin.
What a home warranty covers
A home warranty plan covers specific components of appliances and systems — not necessarily each and every part. 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
Some of the top companies offer roof leak protection and optional coverage for items such as sump pumps and pools. Your contract should state exactly which components are excluded. If you’re not sure, ask for clarity before you buy a plan.
» TIPS: 10 questions to ask a home warranty company
What home insurance covers
A standard policy pays for financial losses caused by fire, severe weather and other unexpected events. In general, homeowners insurance offers three types of protection:
- Dwelling coverage: Standard policies usually include your home’s walls, roof and foundation, and other structures on your property, like a garage.
- Personal property coverage: This covers your personal items, such as furniture, clothing and electronics. “Imagine turning your home upside down and shaking it. Anything that falls out is your personal property and is typically covered by your homeowners insurance,” Conlin said.
- Liability coverage: This protection can cover your legal responsibility if anyone is injured on your property.
Policies can also cover medical expenses for guests if they get hurt while visiting your property and additional living expenses if you ever need to pay for temporary housing while your home is being repaired. Some policies also include flood or earthquake insurance and other coverage options.
Costs
The cost of a home warranty versus home insurance varies depending on your level of coverage, where you live, the age and condition of your home and other factors.
In general, home warranties are less expensive than home insurance. However, it's important to carefully consider the level of coverage you need for your home and to shop around for the best policies and rates for your individual situation.
- How much a home warranty costs: Annual costs for a home warranty typically range from $450 to $600, though the most comprehensive plans can be $1,200 or more. Usually, you pay a service fee between $75 and $150 each time you need service.
- How much home insurance costs: Average premiums (how much you pay per year) in 2020 were between $846 and $1,654, depending on various factors, according to the National Association of Insurance Commissioners. Most deductibles (how much you pay out of pocket before coverage kicks in) are $500 to $2,500. How much you pay each month depends on the location of the home, your claims history and other factors; whether you have a dog, swimming pool or trampoline can also affect the rate.
» TIPS: How to save on homeowners insurance
Filing claims
Whether you file a claim with your warranty or insurance company will depend on what went wrong. Call the home warranty company if you need to repair or replace a big appliance or system after a random breakdown; call the insurance company if you’re dealing with damage or loss caused by an unexpected event like fire, theft or natural disaster.
- Home warranty claims: If you have a home warranty, you can file a claim with your provider. Once it receives the claim, it will connect you with an approved service provider, who will visit your home to assess the problem, determine if it’s covered and make the repair.
- Home insurance claims: First, contact your insurance company and provide details of the damage. An adjuster will assess the damage and determine the amount of the claim. You should keep records of all related expenses and follow up with your insurance company if you have any questions or concerns.
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).
Pros and cons
Both home warranties and home insurance policies have their benefits and drawbacks in terms of cost, coverage, claims and convenience.
Home warranty pros and cons
Home warranty contracts cover breakdowns from regular use and age, which is one reason homeowners find them so attractive, especially if they’re new buyers or purchasing an older home, according to Conlin.
Some home warranty companies let you choose your own licensed service technician, but most assign a contractor from their network. This is because providers usually have agreements with specific contractors to get discounts on labor.
One point for homeowners to know before purchasing a home warranty, according to Colin, is “there is a requirement that your systems and appliances must be properly maintained, which is a perennial sticking point.”
» MORE: Annual home maintenance checklist
Pros
- Can be cost-effective
- No need to look for contractor
- Easy to budget
- Peace of mind
Cons
- Coverage limits
- Lots of fine print
- Inability to choose your own technician
- Potential you don’t use it
Home insurance pros and cons
Home insurance is an important type of financial protection for homeowners, but it's essential to carefully review policy terms, limitations and costs to ensure the coverage is appropriate and affordable.
If you’re comparing quotes that seem too high, consider raising your deductible or asking about discounts. Bundling home and auto policies is just one of the ways to save money on home insurance.
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.
Pros
- Guards against property loss
- Liability protection
- Coverage flexibility
- Peace of mind
Cons
- Premiums can be expensive
- Required by home lenders
- Coverage limitations
- Doesn’t cover everything
FAQ
Do I have to have homeowners insurance?
Most mortgage lenders require homeowners insurance until you pay off your house. It’s also necessary if you have a reverse mortgage or home equity loan. Depending on where you live, your lender might require flood or earthquake insurance.
On the other hand, a home warranty is never required. It’s optional protection that covers the repair or replacement of major systems and appliances in your home, such as HVAC, plumbing and electrical systems.
“While a home warranty may be a good fit for your needs, it doesn’t replace the need for homeowners insurance,” Conlin said.
How does a home warranty work?
“Much like a manufacturer’s warranty, a home warranty pays to repair or replace a covered item when it malfunctions within a certain time frame, typically a year,” Conlin said.
For the length of your contract, 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’s covered, the warranty company pays for the repair or replacement.
» MORE: What is a home warranty?
How does homeowners insurance work?
Homeowners insurance pays for costs associated with loss or damage from natural disasters, fires, theft and vandalism, referred to as “perils.”
A homeowners insurance policy covers your home's structure and your belongings inside. How much coverage you need depends on how much your home would cost to replace and the value of your personal possessions.
A policy also protects you from financial liability as a homeowner if you're responsible for injury or damage to someone else's property. For example, if someone is injured on your property, your policy could cover the resulting legal or medical expenses.
» MORE: What is homeowners insurance?
How can I find a good home warranty or insurance company?
ConsumerAffairs publishes free guides and resources to help people like you make informed buying decisions.
Read our guide to finding the best homeowners insurance for you. We compare coverage options, rates and reviews of the top providers.
Our research team also analyzed dozens of providers on available plans, coverage limits, plan prices, customer reviews and other factors to make picks for the best home warranty companies.
Bottom line: Do I need both?
Home insurance covers damage to your home and personal belongings from events such as fire, theft and natural disasters. It also offers liability coverage for injury or damage to others on your property.
A home warranty is never required, but a good warranty plan will pay for the most common repairs homeowners have to make: plumbing, air conditioning, refrigerators, heating systems and smoke detectors.
For example, if your heater is destroyed in a house fire, homeowners insurance protects you financially, but it won’t pay for repair or replacement if your heater stops working due to age. Depending on the age of your home and appliances and systems, your budget and your risk tolerance, you might opt for a home warranty or decide you don't want the additional coverage.
» MORE: Is a home warranty worth it?
- Article sources
- ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- National Association of Insurance Commissioners, “Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/ Cooperative Unit Owner’s Insurance Report: Data for 2020.” Accessed April 25, 2023.
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