Home Warranty vs. Homeowners Insurance

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When you buy a new home, you want to do everything you can to protect it. Fortunately, you have options to safeguard your property. But which protections are right for you?

To help you decide, we’re going to compare two of the top tools people use to keep their home safe and functioning: a home warranty vs. home insurance. As personal finance expert Laura Adams explains, “It’s critical to understand what’s covered by a home warranty vs. home insurance.”

Is a home warranty the same as home insurance?

No. Homeowners insurance is — as its name suggests — an insurance product. You buy it to protect against 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 the belongings you keep in your home, your insurer covers the cost (minus your deductible and up to your policy limits) to rebuild, repair or replace, whatever the case may be.

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

If both products help cover costs for you as a homeowner, is a home warranty the same as home insurance? No. Home insurance steps in after covered perils like natural disasters and theft, while home warranties cover repairs or replacement when a major appliance or system breaks.

What does a home warranty cover?

“You can purchase [a home warranty] to limit the potential cost of repairing or replacing major home systems and appliances that break down due to normal wear-and-tear,” Adams says. “The protections depend on your provider and the plan you choose. In some cases, you can customize a home warranty to include specific items, such as a wine cooler, spa or pool.”

Some of the more 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 call your home warranty company. They send a technician out (you’ll usually pay a service fee for this visit). The technician appraises the issue and, assuming they determine it’s within the scope of your home warranty, they start the process of getting it repaired for you. You’ll pay the service fee for the technician’s visit(s), but everything else should be covered.

In short, a home warranty is something you can choose to purchase to protect yourself against expensive appliance or system repairs.

What does home insurance cover?

One of the biggest pieces of the home warranty vs. home insurance conversation is when these products kick in to help pick up the tab for you. With a home warranty, it’s usually when something breaks during the course of normal use.

With home insurance, the coverage is much broader. Generally, a homeowners insurance policy will protect you against:

  • Fires
  • Windstorms
  • Riots
  • Lightning
  • Hail
  • Damage from aircrafts of vehicles
  • Theft
  • Vandalism

How does homeowners insurance protect you against these things? By paying for the damages they cause. Usually, your home insurance policy covers:

  • Your house itself
  • Any other structures on your property (like a detached garage)
  • The personal property you store in your house (like your clothes, furniture and electronics)
  • Your additional expenses if you get displaced from your house by a covered cause
  • Your personal liability

That last one means your policy can help with legal fees in certain cases. If someone sues you after getting hurt on your property, the personal liability coverage in your homeowners insurance steps in, for example.

While a home warranty is optional, you might need to have home insurance coverage. As Adams explains, “Homeowners insurance is required by mortgage lenders to protect your property against covered events, such as damage from a natural disaster or vandalism.”

To protect their investment in your house (via your mortgage), your lender might require you to keep a home insurance policy in place.

Do you need a home warranty?

Adams puts it succinctly, saying, “A home warranty is never required.” It’s something you can choose if you’re worried about the costs associated with homeownership. A home warranty can be worth it to give you peace of mind knowing that if something big breaks, you’ll have help fixing it.

If you’re worried about repair costs and don’t have much money in your savings account, it might be worth considering. “You’re likely a good candidate for a home warranty if you don’t have ample savings to pay for unexpected and expensive home repairs,” Adams says.

That said, a home warranty usually costs at least a few hundred bucks a year and averages nearly $1,000 annually — and you’ll still need to pay the $50-$100 service fee for each visit. If you sock that money away instead of buying a warranty, you can build a nice little savings account to cover repairs through the years. That account won’t expire like a warranty does.

“The downside of a home warranty is that it lasts for a limited time,” Adams says. “If you don’t have needed repairs during the warranty period, you don’t get the cost refunded.”

Where can you get a home warranty?

Still thinking about a home warranty? If you think of it as homeowners warranty insurance, you might decide the peace of mind is worth the price.

To explore your home warranty options, start with a simple Google search of “home warranty [your city, state].” This will pull up local options so you can start comparing home warranty providers.

As you shop, 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 to make sure your home warranty would cover it.

Get quotes from at least a few home warranty companies. Pick the warranty that protects the most appliances/systems against the most causes of breakdown for the least money. Don’t forget to factor service fees in as part of the equation.

Frequently asked questions

Can I have both a home warranty and home insurance?

Absolutely. Although we’ve been framing this article as home warranty vs. home insurance, you can buy both products. Having both can help you rest easy, especially if you’re a new homeowner worried about navigating the costs of homeownership.

Is homeowners insurance worth it?

While it may seem like a pricey purchase, having a policy in place can help you maintain your quality of life through a number of different disasters. Plus, your home insurance policy protects all of your personal property — from your clothes to your electronics — and can even help if you find yourself facing a personal liability lawsuit.

While a home warranty is optional, we recommend that all homeowners have home insurance.

What is homeowners warranty insurance?

That’s not a thing. People often confuse home warranties and home insurance, but they’re two separate products designed to do two separate things.