Homeowners Insurance vs. Home Warranty

Home insurance and home warranties, while similar, serve distinct purposes. Home insurance protects your home in case of sudden or unexpected damages, such as those caused by weather-related incidents or theft. On the other hand, home warranties pay for replacing or repairing your home’s appliances or systems due to wear-and-tear damage.

These two types of coverage work together to provide a comprehensive safety net for homeowners, safeguarding not just the home's structure but also the appliances and systems within. Learn more about their unique benefits and how they come together to secure one of your most important assets — your home.

Home insurance and home warranties cover different things, but both can ensure a well-protected home. Home insurance, generally a prerequisite for homeowners with a mortgage, safeguards against significant threats and provides liability coverage. Home warranties, while not obligatory, offer the added security of affordable repair and replacement services for home systems and appliances, complementing home insurance and giving you extra peace of mind.

Look below for the differences between home insurance and home warranty policies.

Home Insurance

• Protects against major perils such as fires, theft and windstorms
• Provides liability protection for injuries on the property
• Required by most mortgage lenders
• Covers personal belongings damaged or lost due to covered perils
• Coverage scope determined by named perils or all-risk policy
• Does not typically cover wear and tear of systems and appliances
• Can include additional living expenses coverage for temporary displacement

Home Warranty

• Covers repair and replacement of household systems and appliances
• Offers service discounts for home system and appliance maintenance
• Optional, not required by lenders
• Does not cover personal belongings, only systems and appliances
• Coverage specifics detailed in the contract, may vary greatly
• Specifically designed to cover wear and tear of covered items
• Does not cover living expenses related to home repair or replacements

You may end up requiring one or both of the above policies to protect your investment.

When home systems and appliances fail unexpectedly, the costs can pile up fast; thankfully, a home warranty can ease this financial burden. This service contract provides a safety net for repair and replacement costs of essential household appliances and systems like:

• Dishwashers
• Ovens
• Refrigerators
• HVAC systems
• Plumbing systems
• Electrical systems

Home warranty providers might offer different plans: an appliance-only plan, a home system-only plan or a combination plan, which covers both appliances and home systems. Coverage also comes with annual limits, which vary from provider to provider.

Home warranties are essentially service contracts, meaning they involve service fees and premiums. They don't eliminate repair or replacement costs of appliances or systems; instead, they provide a financial safety net against higher repair expenses.

While not a requirement, a home warranty can provide substantial relief in the face of unexpected home repair costs. Real estate deals may sometimes include these warranties, with coverage starting immediately upon closing. Alternatively, you can purchase independently, but a waiting period may exist before warranty coverage begins.

The cost of home warranties varies, with homeowners usually paying a monthly premium between $25 and $80, translating to an annual cost of $300 to $1,000+. An additional "trade service fee" ranging from $75 to $150 applies for each initial service visit per claim. These costs may seem significant, but the potential savings from a covered repair or replacement often justify the investment.

Home insurance offers coverage for property damage, personal property, liability for injuries to guests and additional living expenses under specific circumstances. In particular, standard home insurance offers coverage for:

• Structural damage to the home
• Personal belongings inside the home (furniture, clothing, electronics, etc.)
• Liability for injuries to guests on your property
• Additional living expenses if the home is uninhabitable due to damage from a covered peril
• Damage caused by certain natural disasters (such as wind, hail or fire) but typically excludes flooding, earthquakes, regular wear and tear, and vermin damage
• Theft or damage caused by vandalism

A more comprehensive, all-risk policy covers a wider array of perils but comes with a higher premium.

However, remember that the exact coverage can vary significantly based on the specific policy and insurance provider. Home insurance policies can also come with limits and exclusions, and some events or damages might require additional coverage.

While not legally required, home insurance is often a condition set by most mortgage lenders, making it a vital consideration for homeowners.

Several key factors, including dwelling coverage level, location, home age, construction type and more, determine the cost of home insurance. On average, a typical home insurance policy for $250,000 dwelling coverage costs around $1,979 per year or $165 per month. Increase your dwelling coverage, and your premium follows suit — for $500,000 in dwelling coverage, expect your policy cost to nearly double to about $3,519 yearly or $293 monthly. However, shopping around can help you find cheap home insurance that suits your needs.

Protecting your home investment is crucial, and both home warranties and home insurance can provide a layer of security. While these two policies serve different purposes, they complement each other in providing comprehensive protection. Here's how to decide if you need either of these policies.

Buy a home warranty if...

• You have older appliances or systems that may be nearing the end of their lifespan.
• You're not handy or don't have a trusted network of repair professionals.
• You want to avoid unexpected repair or replacement costs.
• You're selling your home and want to provide a perk for buyers.

Buy home insurance if...

• You have a mortgage, as most lenders require it.
• You want to protect your home and belongings against theft, fire or certain natural disasters.
• You want liability coverage in case someone is injured on your property.
• You could not afford to rebuild or repair your home out of pocket following significant damage.

Consider your financial situation and decide if one or both of these policies best suit your needs.

When safeguarding your home, understanding the difference between home insurance and warranty is essential to purchase the appropriate coverage. Our answers to frequently asked questions can kick-start your journey to better grasping the details between homeowners insurance and home warranties.