Home Warranty vs. Home Insurance: Everything You Need To Know
If you took out a mortgage to buy your home, your lender likely requires you to have home insurance – also known as homeowners insurance – to protect against unexpected losses or damage to the property. A home warranty is another way to protect yourself from costly repairs, but it’s a separate policy that covers different types of losses and works in a completely different way. Do you need both? Read on to learn the differences between a home warranty and home insurance, including what’s covered under each policy and how each can benefit you.
What’s The Difference Between A Home Warranty and Home Insurance?
Home insurance covers damage to the structure of your home or loss of property caused by unexpected events, such as natural disasters, fire or theft. Home warranties cover the cost of replacing and repairing major appliances and home systems due to age or normal wear and tear. Home insurance and home warranties cover different expenses, and while lenders usually require home insurance, warranties are optional.
Home Warranty Overview
A home warranty is a service contract that pays for the repair or replacement of major appliances and home systems. You pay a monthly amount for warranty coverage plus a service fee for each issue. When a covered appliance or system fails, the warranty company will enlist a third-party service provider to complete the work.
Depending on the company, you may be able to choose from a variety of plans, such as ones that only cover appliances or only cover systems, tiered plans and build-your-own plans. It’s also usually possible to add coverage, or “add-ons,” to the plan you choose. You may get a home warranty for free when you buy a home, as some sellers may offer to pay for one for a specific amount of time as an incentive to buy their home.
You might consider buying a home warranty plan if:
- Your home has older appliances and systems.
- You prefer to not have to hire your own service technician when failures happen.
- You want to avoid the financial burden of costly repairs and replacements.
A warranty may not be the best fit for you if:
- You have new appliances and systems with valid warranties from the manufacturers.
- You want to hire your own service technicians.
Home Insurance Overview
If you’re taking out a mortgage, your lender usually requires you to have a homeowners insurance policy. Even if you aren’t taking out a loan for your home purchase, you should still consider getting home insurance. Why? Because having home insurance benefits you as a homeowner in several ways.
Homeowners insurance covers your home, property and personal belongings. It protects you from liability should an unexpected event, like an injury, occur on your property. Your lender’s financial investment is also protected by home insurance.
What’s Your Goal?
Home Purchase
Home Refinance
Tap Into Equity
What Does Home Insurance vs. A Home Warranty Cover?
As we’ve briefly discussed, home insurance and a home warranty cover different things. Be mindful that specific coverage will depend on the type of plan you choose.
What’s Covered By Home Insurance vs. A Home Warranty?
| Coverage | Home Insurance | Home Warranty |
|---|---|---|
| Theft | Yes | No |
| Fire damage | Yes | No |
| Storm damage | Yes | No |
| System repair | No | Yes |
| Appliance repair | No | Yes |
| Damage caused by plumbing | Yes | No |
| System wear-and-tear | No | Yes |
Keep in mind that if a system or appliance covered by your home warranty fails, the warranty will only cover repairs to the appliance or system. It will not cover damage caused by the failure. For example, if your plumbing system fails, the home warranty will cover the repair but not the water damage caused by the failure. However, while your home insurance won’t cover the repairs, it may cover the damage caused by the failure.
Standard Home Insurance Coverage
A standard home insurance policy offers coverage against loss or damage that is out of a homeowner’s control, such as some natural disasters, theft and accidents. If an accident occurs on your property, home insurance also gives you liability protection – covering you against costly lawsuits. You’ll pay a deductible if insurance is used to repair, rebuild or replace something, but your insurance company will cover the rest.
The typical cost of homeowners insurance ranges between $50 and $450 per month. The exact amount you pay will vary based on your home’s location, age and value, as well as your financial history and coverage level.
Here are some commonly covered items:
- Your home
- Detached structures on your property, such as a garage, guest house or shed
- Personal belongings, including furniture, electronics and clothing
- Personal liability
Insurance typically offers protection in the event of:
- Fire and smoke
- Accidental damage
- Theft or vandalism
- Natural disasters (excluding earthquakes and floods)
- Accidental injury
Standard insurance policies won’t cover everything in your home. You may need to buy additional insurance for protection against earthquakes or floods.
Here are a few things that may not be covered by home insurance:
- Expensive items like jewelry, artwork and furs
- Flood damage
- Earthquake damage
- Pest damage
- Regular wear and tear
Home Warranty Coverage
A home warranty plan covers the repair or replacement of vital home systems and major appliances. The typical cost for a home warranty can be anywhere from $350 to $700 annually, which breaks down to about $30 to $60 each month. You’ll also want to budget for a service fee of $75 to $125 each time you need a replacement or repair.
Though varying by plan, a home warranty generally covers:
- Major home appliances like refrigerators, ovens, washers, dryers and dishwashers
- Vital home systems such as air conditioning, water heaters, electrical and plumbing
Warranties often cover repair or replacement needs that may arise from:
- Normal wear and tear
- Common malfunctions
- Age
Make sure to check your service contract for any limitations and exclusions. Your warranty plan may not cover the following:
- Appliances or systems that weren’t correctly installed
- Work done by out-of-network providers
- Certain appliances and system
- Certain parts of appliances that are covered
- Any remaining cost that exceeds the annual limit of what the warranty provider will pay
Get matched with a lender that can help you find the right mortgage.
FAQ
Here are answers to common questions about home warranties vs. homeowners insurance.
The Bottom Line
Both home warranty and home insurance provide benefits for you as a homeowner. However, they’re not quite the same. A home warranty is optional, covering the repair and replacement of major appliances and systems in your home. Home insurance is required by your mortgage lender. It protects against damage or loss to your home and belongings should an unexpected event happen.
