Home Warranty vs. Home Insurance: How Do They Differ?

When you buy a home, you might be offered a home warranty, and it’s important to understand the differences between home warranties and home insurance. A home warranty covers appliances and systems, while homeowners insurance covers your home’s structure and personal belongings and protects you against liability.

Here’s a closer look at the main differences between a home warranty plan and a homeowners insurance policy.

What is a home warranty?

Your home warranty plan, sometimes called a service contract, should repair or replace major appliances and systems in your home. These updates could be due to normal wear and tear or other issues. Your service contract usually lasts one year, although some warranty companies offer monthly coverage.

Additionally, you’ll often pay a flat rate for a service call. But the rate might be lower than you’d pay to have someone service a major system outside of your home warranty contract.

What does a home warranty cover?

Your home warranty coverage depends on your service provider and the contract. It might cover repair costs or the replacement of the item or system components if necessary.

Some of the major home mechanical systems that might be covered by a home warranty include:

• Heating

• Plumbing in the home’s internal systems

• Electrical

• Water heater

• Ductwork and HVAC system

On top of that, specific items, like major appliances, might be covered by a service contract, including the:

• Air conditioner

• Garbage disposal

• Dishwasher

• Refrigerator

• Stove and oven

• Garage door opener

• Pool equipment

• Spa equipment

These are just examples, as all home warranty policies are different and a covered system with one company might not be covered with another.

Some home appliances and systems may only have optional coverage. Read the fine print and terms to make sure the coverage matches your needs. 

What does a home warranty exclude?

While a warranty will cover the mechanical failure of some items, not everything is covered. For example, some common coverage exclusions include your:

• Roof: Many home warranties don’t cover roofs. Those that do may only cover leak repair and not damage as a result of the leak.

• Outside plumbing: While your warranty on the interior plumbing system might cover leaks and clogs, any damage won’t be included. Plus, outdoor pipes, septic tanks, and related pipes aren’t covered. You might be able to get add-ons for coverage for septic tanks or wells.

• Windows: Windows and other structural elements aren’t included in most home warranties.

• Solar panels: These are considered part of the home, so structural damage to them isn’t covered by a home warranty contract.

• Personal property: Damage or theft to your personal property isn’t covered by home warranties.

Additionally, your service contract likely won’t cover damaged items as a result of improper installation, lack of maintenance, or secondary damage.

How much does a home warranty cost?

A basic contract can cost $400 to $550 per year, according to the National Home Service Contract Association. Depending on where you live, you might also pay a service fee of $35 to $100.^[1]

In general, your location, the specific items covered by the contract, and whether you have replacement requirements or repair requirements all affect the total cost of your contract. Get quotes from three to five companies, and choose the one that offers the coverage you need at a price that fits your budget.

Where to buy a home warranty

Several different home warranty companies can provide you with a contract. You can start with an internet search or check with the National Home Service Contract Association to get a list of members.

What to know about home warranty claims

Before you file a home warranty claim, make sure you understand your coverage and whether the item or system is included. If a covered item breaks or if you need a system repair, you can move forward.

Next, contact your home warranty company and tell them about your problem. Many home warranty companies will send someone to your home in 24 to 48 hours to verify the damage and start repairs.

When you call, be ready with specific information about the issue. In many cases, you can have the claim wrapped up within a few days. However, supply chain issues may delay your replacement or repair.

You should also be ready to pay the service fee and any out-of-pocket costs for uncovered damage or items.

Learn More: The Truth About Home Warranty Companies

What is home insurance?

Homeowners insurance is designed to help you with the financial burdens associated with major damage to your home — or even its destruction.

Most mortgage lenders require you to get home insurance when you get your mortgage loan. In general, you pay a regular premium, and most standard home insurance policies will help with repair, replacement, or rebuilding after a covered event or after your property is stolen.

Homeowners insurance also comes with liability protection, in the event that someone is injured on your property.

What does homeowners insurance cover?

Most home insurance policies cover standard perils like natural disasters, accidents, and theft. They may also cover additional living expenses you incur as a result of being forced out of your home by a covered event.

Most home insurance policies include any or all of these different types of coverage:^[2]

• Structure: This includes the main structure of your home. In general, if your home is damaged or destroyed by a disaster like fire, lightning, hail, or a hurricane, your insurance will take care of the costs to repair or rebuild.

• Detached structures: Gazebos, sheds, and detached garages might also be covered to about 10% of the coverage limit you have on your house.

• Personal belongings: Damage to your personal belongings, including your furniture, electronics, clothing, equipment, and more, is also covered. You’re also covered if the items are stolen, including from your car.

• Liability coverage: You’re at financial risk if someone is injured on your property and decides to sue. Homeowners insurance will cover medical bills for people hurt at your home. Additionally, damage caused to other people’s property by your children or pets is also covered.

Learn More: Attractive Nuisance: What It Is and Why You Should Care

What does homeowners insurance exclude?

It’s important to note that not everything is covered by your home insurance policy. For example, floods, earthquakes, and nuclear radiation aren’t usually covered. Damage due to a burst interior pipe might be covered by your homeowners insurance, but the damage caused by rising groundwater won’t be.

In addition, if you live in an area prone to certain disasters, you’ll probably need to get a separate insurance rider or even a separate policy to get coverage for it.

You should also know that most home insurance policies won’t cover costs related to wear and tear or maintenance. Appliances that break also aren’t covered under homeowners insurance.

And remember the coverage limits. For example, you might have a $100,000 liability limit. Once claims go beyond that cost, you’re responsible for the remaining amount.

Learn More: Why Do Home Insurance Companies Deny Claims?

How much does homeowners insurance cost?

Your home insurance premium depends on a number of factors, but one of the biggest is where you live. Home insurance is usually listed as an annual premium, although you might pay it monthly or quarterly.

Where to buy homeowners insurance

You have many options for buying homeowners insurance, including online. You’ll need to get it as a condition of your mortgage, so your lender can usually help you identify companies designed to help protect you (and the lender) from financial loss. You can also use a comparison website to compare different home insurance quotes.

Get quotes from between three and five companies to find the policy that works best for you.

What to know about homeowners insurance claims

In general, you call the home insurance company when you need to file a claim. They’ll speak with you about the situation and the conditions that led to the damage. Then, they’ll send someone to see the damage or a contractor to verify the work that needs to be done.

You might have to pay out of pocket to meet your deductible. Make sure you understand your coverage and that you’re clear with the insurance company about what happened.

Key differences between home warranties and home insurance

In general, home insurance takes care of any structural property damage and protects you from financial risk. Your home warranty helps you manage the cost of repairing or replacing household appliances and systems.

Important similarities between home insurance and home warranties

Both home warranties and home insurance protect your home and rely on a claims process. Additionally, they can offer you peace of mind by providing you with a way to protect your finances in the event of a major expense.

Home warranty vs. home insurance: Which is right for you?

What works for you depends on your situation and what matters most to your financial plan. In most cases, you’re required to buy home insurance to satisfy the terms of your mortgage loan. A home warranty is optional, but it can solve a coverage gap in your home insurance.

If you’re concerned about a major system failure, getting a home warranty can be a good idea. On the other hand, many home repairs and replacements can be handled without a home warranty if you build an emergency fund.

Home warranty vs. home insurance FAQs

As you consider a home warranty and home insurance to protect your finances and your home, here are some things to keep in mind.