Home Warranty Vs. Homeowners Insurance: Understanding The Distinctions

 Home Warranty Vs. Homeowners Insurance: Understanding The Distinctions - Marticio's son is an insurance professional. His previous writing experience in small business and f...

Fran Majidi manages the content on the website. She has nearly a decade of experience writing about i...

Home Warranty Vs. Homeowners Insurance: Understanding The Distinctions

Our panel of insurance experts has reviewed the content to ensure that our reports and statistics are accurate, easy to understand and unbiased.

Are Home Warranties Worth It?

Provides Heartfelt, Fact-Based Information. Our fact-checked articles are intended to educate insurance buyers so they can make the right purchasing decision. Learn More

A home warranty covers the cost of repairing or replacing your home's main systems and appliances if they break down over one year. Homeowners insurance provides coverage for your home and belongings if they suffer a covered loss, such as damage from a fire. A home warranty is optional but home insurance is required if your home is being financed by a lender.

Below, we explore the key differences between a home warranty and home insurance and how each can serve you as a homeowner.

A home warranty is not the same as homeowners insurance. A home warranty covers the major systems and appliances of your home (eg, heating, refrigerators, stoves) while home insurance covers the structure and contents of your home (which may include other systems and devices). Below, we expand on the key differences between home insurance and home warranty.

What Is Home Warranty Insurance?

A home warranty is a service contract that pays for repairs and replacements when your home's major systems or appliances stop working, usually from wear and tear, within a year. A sealed home system can include air conditioning and heating and a washer, dryer and refrigerator for household goods.

Say you sign a one-year service agreement with XYZ Home Warranty, and within six months, your built-in microwave stops working. XYZ Home Warranty sends a service contractor to diagnose the problem. After confirming the microwave cannot be repaired, XYZ Home Warranty covers the cost of replacing and installing the built-in microwave. If they can be repaired, they will repair the microwave. Home warranties are usually paid monthly.

Homeowners insurance covers loss and damage to your property and personal belongings when caused by a covered peril, such as theft or fire. Home insurance also provides coverage beyond property damage, such as personal liability and additional living expenses. If you don't own your home outright (you have a mortgage), then your lender will require you to carry homeowners insurance.

Let's say you've moved into a new home and have a standard homeowners insurance policy. Go out of town for three days on business. At that time, a thief entered your house and stole some electronics. You file a claim and the insurance company agrees to pay you for your loss.

Home Insurance Vs. Home Warranty

Standard homeowners insurance will cover all 16 perils unless certain losses are specifically excluded in the policy.

Unlike a home warranty, home insurance does not cover wear and tear. Instead, the losses covered are usually for events such as fire, natural disasters and theft. Homeowners insurance is also paid monthly.

A home warranty will cover the cost of repairing or replacing the home's main structure or major appliances if it experiences structural damage, including wear and tear. Most home warranty companies offer coverage for the following:

Note that most home warranties offer premium plans. The base plan can only cover a limited number of systems and devices and you need to pay more to get more coverage.

Home Protection: Difference Between Home Warranty And Home Insurance

Any damage outside of normal wear and tear or defects not discovered during the initial home inspection will usually not be covered.

A home warranty company may be able to replace rather than repair an item. The replacement may not always be the same, same design or color as the faulty item. You can find more details about coverage in your local service agreement.

In a standard homeowner's insurance policy, your home's structure and personal contents are covered only if a loss occurs as a result of the covered item. These things that are covered are called risks. The HO3 standard corresponds to the following 16 hazards:

In addition to coverage for your home's structural and personal contents, standard homeowners insurance may provide the following coverage:

Home Insurance And Home Warranty Coverage

Standard homeowners insurance will cover all 16 perils unless certain losses are specifically excluded in the policy. Excluded losses typically include (but are not limited to):

Homeowners can plug these holes in coverage by purchasing an insurance supplement or a private insurance policy, such as a flood or earthquake policy. Ask your current insurer if they offer riders for additional coverage. Alternatively, you can purchase a policy from another provider for specific coverage (for example, a flood insurance policy from the National Flood Insurance Program).

A warranty is optional but can be worth the cost, especially if you are a new home owner. When moving in, you are not very familiar with the major home systems and devices. Buying a home warranty for the first year or two can be useful to cover any mechanical breakdowns that occur while you're settling in. It can also help you avoid costly repairs, such as replacing your HVAC system if your central air conditioner isn't cooling your home.

However, there are many challenges that a home warranty can present. Before buying or renewing a home warranty, you should consider:

Homeowners Insurance Vs. Home Warranty — Intrepid Eagle Finance

Home warranty costs can range from $300 to $720 per year ($25 to $60 per month) depending on your Home Warranty Option. Also, expect to pay a service fee every time a contractor arrives at your home and performs a service. This cost can range from $75 to $125 per visit.

If you are financing your home with a lender, then you need to purchase and maintain home insurance. Even if you pay off your home, having home insurance is always a good idea. Without it, you will be burdened with rebuilding and replacing personal belongings after a disaster. Even with substantial savings, out-of-pocket costs can be significant.

The average cost of home insurance in the United States is $1,213.89 per year ($101.16 per month). Prices will vary by coverage limits, coverage options, location and privacy.

A home warranty covers your appliances when they break down or stop working while home insurance covers your home's structure and contents against other risks, such as fire, theft and wind. A home warranty is optional but home insurance is required if you have a lender.

Protect Your Home (and Your Wallet!) With A Home Warranty! Here's How

A home warranty can be useful for new homeowners who are still in the process of using major home appliances and systems. A home warranty can provide some financial help (and save you a headache) if something goes wrong in the first year. Additionally, homeowners may want to carry a home warranty that covers a wide range of appliances and systems.

A home warranty is good to have but is optional. However, home insurance is required if you're still paying off your mortgage and it's often smart to maintain it even after you've finished paying off your mortgage.

Let us help you find the right home insurance policy at the right price so you can be protected against fire, theft and more. Fill out our questionnaire so we can review insurance carriers in your area to match you with home insurance policies that fit your needs. Enter your zip code below to get started on your free quotes.

Marticio's son is an insurance professional. His previous writing experience in small business and personal finance has earned him endorsements at prominent fintech brands, including LendingTree, ValuePenguin, Fundera, The Balance, and NerdWallet. His guides are always aimed at helping everyday consumers and business people make decisions about their finances and their business. If you own a home or plan to buy one, you may be wondering what the difference is between a home warranty and home insurance. After all, both protect your investment—and your pocketbook—if something goes wrong. However, home warranties and home insurance policies offer a variety of protections. Knowing what each contains can help you decide if you need both.

Benefits Of Getting A First Year Home Warranty When Purchasing A Home

A home warranty is a service contract that helps pay for repairs and replacements of covered home appliances and home systems. In exchange for a monthly or annual fee, you get credit on service calls.

If an appliance or system covered by your plan breaks down, the home warranty company sends an expert to diagnose and fix the problem—and you only pay for the service call. Of course, these plans have coverage limits: A contract can cover up to, say, $1,500 per year for each eligible item, with a maximum annual claim of $15,000.

If you receive a home warranty as part of a real estate transaction, coverage usually begins as soon as you close on the home. However, if you purchased a warranty for a home you own, you may have to wait 15 to 30 days before coverage takes effect.

A home warranty covers equipment and systems in both new and pre-owned homes. Most home warranty companies offer three types of plans:

What Does A Home Warranty Cover?

Many companies allow you to add coverage (for an additional fee) for specific items that are excluded from standard plans. Common "extras" include swimming pools, spas,

Share :