8+ years writing about insurance, taxes, and personal finance
Certified public accountant
Janet applies her experience in personal finance, taxes, and accounting to make complex financial topics accessible. Her byline has appeared on numerous web media.
As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.
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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 claims.
Here’s a closer look at the main differences between a home warranty plan and a homeowners insurance policy.
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Home warranty vs. home insurance
Though a home warranty and home insurance might sound similar, they serve distinct purposes and offer different types of protection.
Home Warranty
Home Insurance
Purpose
Covers repairs or replacement of home systems and appliances due to wear and tear1
Protects against damage from unforeseen events, like fires, storms, and theft
Coverage
Typically includes major appliances, electrical systems, plumbing, heating, and cooling systems
Covers the home’s structure, personal belongings, and liability for others’ injuries
Duration
Typically annual contracts that are renewable each year; some companies may offer monthly contracts1
Typically annual policies are subject to renewal and reassessment
Cost
Annual premium plus service fees per repair visit1
Annual premium based on home value, location, and coverage level
Typical requirement
May be purchased by homeowners for peace of mind or by sellers to enhance home sale appeal
Generally required by mortgage lenders as a condition of the loan
What a home warranty covers
Think of a home warranty as a service contract for your home. Much like a warranty for an electronic device, a home warranty covers the cost to repair or replace systems and appliances that break down over time due to normal wear and tear.
While exact coverages vary from contract to contract, they usually cover your HVAC, electrical, and plumbing systems as well as appliances like your dishwasher, refrigerator, oven, washing machine, and dryer.[1]
Pros and cons of a home warranty
Pros
Lowers the cost of repairing or replacing covered appliances and systems
Saves homeowners the hassle of searching for a reliable service technician and negotiating costs
Offers peace of mind — especially for people who aren’t handy with repairs
Cons
Comes with limitations and may exclude issues due to improper maintenance, pre-existing conditions, or unusual wear and tear[1]
Service fee required every time a technician visits, which can add up after multiple issues or if the first repair doesn’t solve the problem
No freedom to choose your own service providers
What home insurance covers
Home insurance is like a safety shield for your home. It provides financial protection against unforeseen events, like fires, storms, theft, and even liability for accidents occurring on your property. It’s not about the aging of your home or its contents but about protecting your finances from sudden, catastrophic events.
While coverage can vary from policy to policy, most home insurance policies include:
Dwelling coverage
Dwelling 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.
Other structures coverage
Gazebos, sheds, and detached garages might also be covered to about 10% of the coverage limityou have on your house.
Personal property coverage
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 or vandalized.
Personal liability coverage
You’re at financial risk if someone is injured on your property and decides to sue. Personal liability will cover medical bills for people hurt at your home. Additionally, accidental damage your household members or pets cause to other people’s property is covered.[2]
A home warranty is particularly beneficial if you’re uncomfortable attempting DIY repairs or lack a network of reliable service professionals. New homeowners are often unfamiliar with the maintenance needs of a home and can find value in the safety net a home warranty provides.
A home warranty can also be appealing for people purchasing older homes, where appliances and systems might be nearing the end of their lifespan. Home sellers may also invest in a home warranty to make their property more attractive to buyers.
Read the fine print on your warranty
Before buying a home warranty, it’s important to read the fine print.
Home warranties have specific terms outlining what is and isn’t covered. For example, some policies may cover one refrigerator but not a second refrigerator that you might keep in your garage or basement, unless you specifically add it.[3] Knowing these details up front helps you avoid unexpected coverage denials later.
Home warranties can also have exclusions for pre-existing conditions, improper installation, or unusual wear and tear. Understanding these exclusions ensures you understand when and how your service contract applies.
Who should get home insurance?
Home insurance is essential for every homeowner, regardless of their financial circumstances. While wealthy homeowners could self-insure, the cost of repairing or rebuilding after a catastrophic event like a fire or hurricane can be astronomical. Home insurance provides an affordable safety net against such substantial financial losses.
In addition, one of the most beneficial aspects of home insurance is liability protection. If someone is injured on your property or you, a family member, or a pet cause harm to others or their property, you could face substantial legal and medical bills. The liability coverage your home insurance company provides can protect you from such claims.
Finally, if you have a mortgage, the lender usually requires home insurance. It protects the lender’s interest in your property as much as it does yours.
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Home warranty vs. home insurance FAQs
To help clarify the difference between home warranties and home insurance, here are answers to some commonly asked questions.
What’s the difference between home insurance and a home warranty?
Home insurance provides financial protection against unforeseen events like natural disasters, theft, and liability for accidents on your property. In contrast, a home warranty is a service contract that covers repairing or replacing home systems and appliances due to wear and tear.
Why might a homeowner need both a home warranty and home insurance?
Homeowners may need both a home warranty and home insurance because they serve different purposes. Home insurance protects against significant, unforeseen events, like fires or storms, while a home warranty covers repairing or replacing aging appliances and systems.
Can you hire your own contractor with a home warranty?
Generally, you can’t hire your own contractor with a home warranty. When a covered system or appliance needs repair, the home warranty company sends a technician from their network of service providers.[4] This ensures a vetted professional does the work, but it also means you have less of a say in the matter.
Does a home warranty cover water damage?
A home warranty typically doesn’t cover water damage. It covers repairing or replacing appliances and systems due to malfunction or wear and tear, but not the damage they might cause. For example, your home warranty contract might replace a leaking hot water heater but not cover damage the leak causes to your flooring.[5]
Janet Berry-Johnson, CPA is a freelance writer with a background in accounting and income tax planning and preparation. She's passionate about making complicated financial topics accessible to readers. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter. Visit her website at www.jberryjohnson.com.
Janet has been a contributor at Insurify since October 2022.
As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.
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