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Home Warranty vs Home Insurance

A home warranty covers the cost to repair or replace your home's major systems and appliances if they break down over a one-year period. Homeowners insurance provides coverage for your home and personal belongings if they suffer a covered loss, such as damages from a fire. Home warranties are optional but home insurance is required if your home is financed through a mortgage lender.

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

Is a Home Warranty the Same as Homeowners Insurance?

A home warranty is not the same as homeowners insurance. Home warranty coverage revolves around your home's major systems and appliances (e.g., heating, refrigerators, stoves) while home insurance covers your home's structure and contents (which can include some systems and appliances). Below, we expand on key differences between home insurance versus home warranty.

What is a home warranty?

A home warranty is a service contract that pays for repairs and replacements when your major home systems or appliances stop functioning, usually from wear and tear, during a one-year period. Covered home systems may include air conditioning and heating and washers, dryers and refrigerators for home appliances.

Say you sign a one-year service agreement with Home Warranty XYZ, and six months in, your built-in microwave stops functioning. Home Warranty XYZ sends a service contractor to diagnose the problem. After confirming the microwave is unrepairable, Home Warranty XYZ covers the cost of replacing and installing the built-in microwave. If it's repairable, they will repair the microwave. A home warranty is usually billed monthly.

What is home insurance?

Homeowners insurance covers losses and damages to your property and personal belongings when caused by a covered peril, such as theft or fire. Home insurance also offers coverage beyond property damage, such as personal liability and additional living expenses. If you do not fully own your home (you have a mortgage), then your lender will require you to carry homeowners insurance.

Let's say you moved into a new home and have a standard homeowners insurance policy. You went out of town for three nights for business. During that time, a burglar broke into your home and stole some electronics. You file a claim and your insurance company agrees to reimburse you for your loss.

A standard homeowners insurance will cover all 16 perils unless a certain loss is specifically excluded in the policy.

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

Homeowners insurance vs home warranty


Home Warranty

Home Insurance

Covered Items

Major home systems and appliances

Home structure, foundation and personal belongings

Covered Losses

Mechanical breakdowns, wear and tear

Natural disasters, theft, malfunctioning of major home systems and more

Term

12 months

12 months

Average Cost

$300 to $720 per year*

$1,213.89 per year**

Required?

Optional

Typically required if you have a mortgage lender

*Source: Choice Home Warranty
**Based on SmartFinancial data

home warranty vs home insurance infographic

What Does a Home Warranty Cover?

A home warranty will cover the cost of repairing or replacing a major home system or major appliance if it experienced a covered breakdown, which includes natural wear and tear. Most home warranty companies offer coverage for the following:

Major Systems

Major Appliances

Additional

Air conditioning

Built-in microwaves

Central vacuum

Ductwork

Ceiling fans

Pools and spas

Electrical

Dishwashers

Roof leaks

Plumbing

Doorbells

Second refrigerator

Water heaters

Garbage disposals

Septic pumps


Oven/cooktop

Standalone freezer


Refrigerators

Well pumps


Washers and dryers


Be mindful that many home warranties offer tiered plans. The base plan may only cover a handful of systems and appliances and you will need to pay extra to gain more coverage.

Unlike a home warranty, home insurance does not cover wear and tear.

What a home warranty does NOT cover

Any breakdown outside normal wear and tear or a defect not identified in an initial home inspection would typically not be covered.

  • Plumbing stoppages outside the home's main foundation

  • Failure due to power failure or surges

  • Pest damage

  • Pet damage

  • Natural disasters (e.g., fire, flood, earthquake)

  • Manufacturer defects or improper design

  • Mold, mildew or fungus damage

  • Some supplemental costs when replacing an item (e.g., necessary construction work to install a new central air conditioning system)

Your home warranty company may have the discretion to replace rather than repair an item. The replacement may not always be the same brand, model or color as the malfunctioning item. You can find more details about your coverage in your home service agreement.

Major systems covered by company

Company

Heating

Air conditioning

Electrical

Plumbing

Roof (Leaks)

Water Heater

Mold

American Home Shield

X

Choice Home Warranty

X

Cinch Home Services

X

X

Complete Care Home Warranty

X

First American Home Warranty

X

X

Liberty Home Guard

X

Select Home Warranty

X

Major appliances covered by company

Company

Built-in Microwave

Clothes Washer/Dryer

Dishwasher

Oven/Cooktop

Refrigerator

American Home Shield

Choice Home Warranty

Cinch Home Services

Complete Care Home Warranty

First American Home Warranty

Liberty Home Guard

Select Home Warranty

Find Affordable Homeowners Insurance

What Does Homeowners Insurance Cover?

In a standard homeowners insurance policy, your home's structure and personal belongings are only covered if losses are the result of a covered event. These covered events are called perils. A standard HO3 policy against the following 16 perils:

  • Fire or lightning

  • Windstorm or hail

  • Explosion

  • Riot or civil commotion

  • Damage by aircraft

  • Damage by vehicles

  • Smoke

  • Sudden/accidental tearing, cracking, burning, or bulging of home systems

  • Vandalism or malicious mischief

  • Theft

  • Volcanic eruption

  • Falling objects

  • Weight of ice, sleet, snow

  • Freezing of home systems

  • Sudden/accidental power surges

  • Water/steam discharge from home systems and appliances

Other homeowners insurance coverage

Beyond compensation for your dwelling structure and personal belongings, standard homeowners insurance may also offer the following coverage:

  • Personal liability: Pays for legal fees when you are sued because you were responsible for the bodily injuries of another person (e.g., a guest slips while inside your home) or damages to their property (e.g., accidentally driving into your neighbor's mailbox).

  • Medical payments to others: Pays for the medical expenses incurred as a result of suffering a bodily injury while on your property.

  • Additional living expense: Pays for living expenses, such as hotel bills and meals, when your home is inaccessible due to a covered loss (e.g., your home is being rebuilt after a fire).

Home insurance is required if you're still paying off your mortgage loan.

What homeowners insurance does NOT cover

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

Homeowners can plug these holes in their coverage by purchasing insurance endorsements or standalone insurance policies, such as a flood or earthquake policy. Ask your current insurer if they offer riders to supplement your coverage. Otherwise, you may purchase a policy from another provider for specific coverage (e.g., a flood insurance policy from the National Flood Insurance Program).

Who Should Buy a Warranty?

Warranties are optional but may be worth the cost, especially if you're a new homeowner. When moving in, you're not deeply familiar with the home's major systems and appliances. Buying a home warranty for the first year or two can be useful to cover any mechanical breakdowns that occur as you're settling in. It can also help you circumvent some costly repairs, such as replacing your HVAC system if your central air conditioning isn't cooling your home.

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

  • Claim caps: The home warranty company may enforce a maximum payout per claim. If your claim cap is $2,000 and it costs $9,000 to install a central air conditioning system, then you must pay the remaining $7,000 out of pocket.

  • Deductible: Similar to home insurance, you may need to pay a deductible — an upfront out-of-pocket cost — before your warranty covers the remaining costs of repairing or replacing an item.

  • Covered services: Will the home warranty company guarantee the work completed to satisfaction or only the first round of repairs? A home warranty may not cover additional services if the contractor did not install or repair something correctly on the first service visit. Be sure to confirm how much and when you're covered before buying a home warranty.

  • Past reviews: Look up online reviews or ask fellow homeowners their experiences on filing a home warranty claim, including the smoothness of the claims process and how long it took for a contractor to arrive.

  • Additional optional cost: A warranty still costs money. On top of potential renovation costs and HOA fees, a home warranty is a nice-to-have but unnecessary cost that budget-tight homeowners may need to slash.

How much is a home warranty?

The cost of a home warranty can range from $300 to $720 per year ($25 to $60 per month) according to Choice Home Warranty. Also, expect to pay a service fee each time a contractor arrives at your home and performs a service. This cost can range from $75 to $125 for each visit.

A home warranty is nice to have but it is optional.

Who Should Buy Homeowners Insurance?

If you're financing your home with a mortgage lender, then you will need to buy and maintain home insurance. Even if you pay off your home, having home insurance is always a good idea. Without it, you will shoulder the full burden of rebuilding and replacing personal belongings after a tragedy. Even with vast savings, the cost of paying out-of-pocket can be significant.

How much is home insurance?

The average cost of home insurance in the U.S. is $1,213.89 per year ($101.16 per month). The cost will vary by your coverage limits, your coverage options, location and personal information.

Home Warranty vs. Homeowners Insurance FAQs

What is the difference between a home warranty and home insurance?

Home warranties cover your appliances when they break down or stop functioning while home insurance covers your home's structure and contents from certain perils, like fire, theft and windstorms. A home warranty is optional but home insurance is required if you have a mortgage lender.

Are home warranties ever worth it?

A home warranty can be useful for new homeowners that are still settling into the daily routine of using major home appliances and systems. Home warranties can offer some financial relief (and save headaches) if something malfunctions within the first year. Moreover, homeowners may like that home warranty coverage casts a wide net, covering multiple appliances and systems.

Home Insurance Is Usually Required, Unlike Warranties

A home warranty is nice to have but it is optional. However, home insurance is required if you're still paying off your mortgage loan and is often smart to maintain even if you are done making mortgage payments.

Let SmartFinancial help you find the right home insurance policy at the right price so you're covered from fires, theft and more. Fill out our questionnaire so we can analyze insurance carriers in your area to match you with home insurance policies that meet your needs. Enter your zip code below to get started on your free quotes.

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