Home warranty vs. homeowners insurance

Key takeaways

• A home insurance policy protects your finances against specific types of damage to your home and belongings, while a home warranty is a service contract that can cover repairs to major home systems (like HVAC or plumbing) and major appliances.

• Essentially, a homeowners insurance policy is insurance, while a home warranty is a service contract. Home insurance might be required by your lender, but home warranties are not.

• A home warranty could complement your home insurance policy by adding an additional layer of financial protection and helping to keep your systems and appliances running smoothly.

Navigating the landscape of home protection can be complex, with terms like home warranty and homeowners insurance often appearing interchangeably. Yet these two products offer distinctly separate financial protections, each catering to different aspects of homeownership. To ensure your investment in your property is thoroughly protected, it’s essential to discern the nuances and benefits of both. This guide will help you understand the differences and how they can complement each other for comprehensive coverage.

Is a home warranty the same as home insurance?

A home warranty is different from homeowners insurance. Homeowners insurance is — as the name suggests — an insurance product. It may even be required by your lender if you have financed the purchase of your home.

Insurance can offer peace of mind in case of life’s what-ifs — or what your policy calls covered perils. If a fire burns your house to the ground or a thief makes off with some of the cherished belongings inside it, your insurance could help cover the cost (minus your deductible and up to your policy limits) to rebuild, repair or replace.

A home warranty, on the other hand, is essentially a service contract. It can help cover repairs or replacements for a number of major appliances and systems in your home, from your water heater to your refrigerator.

​​Having well-rounded financial coverage is important to many homeowners since a home is such a significant investment. For some, having both home insurance and a warranty provides just that.

Comparing home warranty vs. home insurance

When deciding whether to purchase homeowners insurance vs a home warranty, understanding the distinct features of each and what coverage is provided can be beneficial. However, before we get to the more detailed comparison of these home protection products. It might be helpful to see a high-level contrast between the two:

What does a home warranty cover?

A home warranty provides a financial safety net for homeowners by covering certain systems and major appliances in the house. This could include fundamental systems like electrical setups and essential appliances such as washing machines. Additionally, some warranties offer extended protection for specialty items like pools, spas or even wine chillers.

Common systems and appliances covered by a home warranty include:

• Refrigerators

• Ovens

• Stoves

• Water heaters

• HVAC systems

• Washers and dryers

If something under warranty breaks due to normal wear and tear, you can typically contact your home warranty company online or by phone. They’ll likely send a technician to your home to assess the issue. If it’s within the scope of your home warranty, they’ll start the process of getting it repaired. While you can usually expect to pay a flat service fee for the technician visit(s), other costs are usually covered by your warranty.

What are common exclusions and limitations in a home warranty?

The exclusions and limitations in a home warranty will differ from company to company. Read your contract carefully before signing up for coverage so you understand what isn’t covered by your company. Here are a few common exclusions and limitations that some warranty companies observe:

• Pest damage: Although some plans cover pest removal, there is often no coverage for damage done by termites, rodents or other pests.

• Pre-existing conditions: If your home system or appliance had a problem that could have been detected by a visual inspection prior to your signing the contract, you may not have coverage. If the condition could not have been known when the plan began, however, you may be covered.

• Cosmetic damage: You’re unlikely to have coverage if, say, there is a chip or scratch in the enamel of your stove or oven unless it could also lead to structural damage.

• Misuse: If damage is caused by using the appliance or system in a way for which it was not intended, you may not have coverage.

• Appliances and systems still under manufacturer’s warranty: In this case, you would contact the manufacturer rather than your home warranty company to schedule repairs.

• Acts of nature: If your systems or appliances are damaged in snowstorms, fire, hurricanes or other acts of nature, you are more likely to have coverage from your homeowners insurance rather than your home warranty.

• Accidental damage: A home warranty may or may not cover accidental damage to a covered appliance or system. Typically, a home warranty covers damage caused by improper installation or daily wear and tear, while your insurance may be more likely to cover damage from a specific incident (depending on your policy’s inclusions and exclusions).

• Solar electric systems: Since these systems are still fairly new, they are generally not covered by your home warranty plan.

What does home insurance cover?

Home insurance, often perceived as the guardian of a homeowner’s peace of mind, can protect you financially against various unexpected damage and losses. Offering a much greater scope of financial protection than a home warranty, homeowners insurance typically covers not just the physical structure of your home, but also the personal assets housed within it.

Standard home insurance policies are typically designed to financially protect homeowners against covered perils — or specific events outlined in your policy. Most standard homeowners insurance policies cover:

• Fires

• Windstorms

• Riots

• Lightning

• Hail

• Damage from aircraft or vehicles

• Theft

• Vandalism

Homeowners insurance is generally more comprehensive than a home warranty as well and usually includes:

• Dwelling coverage: This serves as the foundation of home insurance policies, ensuring financial protection against damages from events like fires, hail or storms. It encompasses the main home structure, as well as any attached components.

• Other structures: Beyond the main building, home insurance can also cover some other structures on the property. This can encapsulate anything from sheds and garages to fences and gazebos.

• Personal property coverage: This component covers your personal property, like electronics, clothing, furniture and even certain outdoor plants. The coverage typically extends to your belongings, even if they’re not on the property. Keep in mind that homeowners with particularly expensive personal property, like art or jewelry, may need scheduled personal property coverage, which can usually be added to your policy at a cost.

• Liability protection: In instances where damage or injury is inflicted upon others due to your property or actions, this protection could shield you from potential financial repercussions. This coverage is usually expansive, often including harm caused by pets (although many insurers will exclude certain breeds or types).

• Guest medical payments: If, for instance, a visitor meets with an accident on your premises, this provision might assist in covering their immediate medical expenses.

• Additional Living Expenses (ALE): In dire situations where a covered peril renders your home unlivable, this type of coverage aids in managing the extra costs of temporary relocation, such as hotel bills or meal expenses (up to certain predefined limits).

What are common exclusions and limitations in homeowners insurance?

The most common type of homeowners insurance policy, called the HO-3, typically protects your home from 16 named perils. There are, however, some exclusions and limitations that are commonly seen in home insurance policies, including the following:

• Flood damage: This is almost always excluded from homeowners insurance policies. To have coverage for flood damage, you will need a supplementary flood insurance policy.

• Earthquakes and earth movement (including landslides and mudflows): This is another common exclusion. Homeowners who live in an area where these are common, such as California, may want to purchase earthquake insurance or an earthquake endorsement for their policy.

• Wear and tear: Your systems and appliances naturally wear down over time, but your homeowners insurance policy is not likely to cover general maintenance repairs.

• Pests: Most insurers exclude damage from rodents, termites or other pests. This type of damage is also not generally covered by home warranty companies, but you may be able to find a pest control company that offers warranties specifically for this purpose.

• Home-based businesses: If you work out of your home, you may need to consider an additional business owners policy. Your homeowners insurance is unlikely to provide coverage, if, say, a client slips and falls at your home office and sues you for medical costs.

• Mold: In most cases, home insurance does not cover you for damage caused by mold in your home, unless you have an additional endorsement providing this coverage.

• High-value items: Although standard home policies cover your belongings, there may be a limit to the payout. If you own expensive artwork, musical instruments, electronics or other items, you may want to add an endorsement giving you more robust coverage.

Do you need a home warranty?

Navigating the difference between a home warranty and home insurance can be intricate. A home warranty, distinct from homeowners insurance, focuses primarily on the wear and tear of appliances and systems. Whether or not you need this type of protection will hinge on your individual circumstances and financial outlook. If you are apprehensive about the potential unexpected costs of homeownership, investing in a home warranty could serve as a financial buffer.

Annually, the cost of home warranties ranges from several hundred to a few thousand dollars depending on how comprehensive the warranty is. Keep in mind there’s often an accompanying service fee for technician visits, so you’ll want to account for those costs as you look at the numbers. A counter perspective might be to allocate funds towards a dedicated savings account for home repairs. And unlike a warranty, which will ultimately expire, a savings account could grow over time.

When evaluating the differences, consider both the immediate benefits and long-term financial impacts. A home warranty could provide a nice complement to your home insurance policy. Consider speaking with a certified financial planner to help map out your financial needs and goals.

Where can you get a home warranty?

To explore your home warranty options, start by asking friends, family and neighbors for recommendations. Firsthand experiences could give you a good idea of what to expect from a home warranty company. If you are a new homeowner, your realtor may be able to recommend a company.

Before you shop around using the suggestions you’ve collected, make a list of appliances and systems you want to protect. If you have a specialty appliance or system — like a pool or wine cooler — jot it down so you can ensure your home warranty will cover it.

Like with home insurance, most experts recommend getting quotes from at least a few home warranty companies (you may want to search for those with good customer reviews). Then, you may want to pick the warranty that covers the most appliances/systems against the most causes of breakdown for the least money. It might be smart to factor service fees in as part of the equation, too.

Frequently asked questions

• • Can I have both a home warranty and home insurance?Yes, you can have both a home warranty and homeowners insurance on the same home. That’s because a home warranty and your homeowners insurance policy will tend to work as complementary products rather than one replacing the other in terms of coverage. In many cases, your home warranty covers the appliances and common systems in your home in case they malfunction or need to be repaired due to normal use. Your home insurance policy, on the other hand, protects you financially against losses or damage due to covered perils.

  • Is homeowners insurance worth it?Homeowners insurance is often regarded as a protective layer for one of life’s most substantial investments — your home. Beyond the walls and roof, homeowners insurance offers potential relief from financial strains arising from unexpected incidents. It typically covers a myriad of personal items, too, from daily necessities to cherished valuables (depending on the type of coverage you purchase and its limits). Even if you don’t have a mortgage (since most lenders require it), you may want to look at your financial assets with a certified financial planner to see if home insurance is worth it for you.

  • What is homeowners warranty insurance?Homeowners warranty insurance, commonly known as a home warranty, is a service contract that covers repairs or replacements of major home systems and appliances due to wear and tear. It differs from homeowners insurance, which covers damage from unexpected events like fires or storms. It offers a layer of financial security against the natural aging of a home’s integral components.