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Home Warranty vs. Homeowners Insurance: What's the Difference?

Catherine Miller
Man signing a home warranty plan
When you’re a homeowner, it’s important to protect your home and the things inside it. If the worst happens, it can be vital to have cover to make sure you’re not hit by unexpected bills and serious inconvenience.

A home warranty and home insurance are not the same. 

  • Homeowners insurance is a type of property insurance that covers the structure and contents of a home against an array of potential losses.

  • A home warranty, on the other hand, is a service contract that pays to repair or replace items like major appliances, heating and cooling systems, and plumbing when they break down due to normal wear and tear.

  • Homeowners insurance typically doesn’t cover breakdowns due to normal wear and tear, whereas a home warranty does.

  • Homeowners insurance does cover events such as fires, theft, and natural disasters, while a home warranty doesn’t.

The two major types of home cover are homeowners insurance and home warranty. But which is right for you and your home? 

Today, we’ll run through the basics of a home warranty vs home insurance to help you decide. 

» Need a new home warranty? Check out our top 10 picks for the best home warranties.

What Is a Home Warranty?

A home warranty covers the repair, and sometimes replacement, of appliances and systems within your home. This can include things like refrigerators, washing machines, or freezers, or larger systems like air conditioning, heating, or plumbing. If your system or appliance breaks down due to normal wear and tear, the home warranty provider will cover the cost of repair (up to a limit), usually sending a vetted contractor to your home to carry this out. 

In some cases, the warranty company may pay for a replacement item or part. Many home warranty companies guarantee workmanship by their contractors, and some also guarantee replacement parts, so if the repair doesn’t work out, you’re not left with a damaged appliance or system. 

A home warranty company makes money by charging customers an annual or monthly fee for the service. This fee covers the cost of repairs and replacements, as well as any administrative costs associated with providing warranties. 

» Thinking of getting your assets covered? Here are the best home warranty benefits.

What Does a Home Warranty Cover?

Home warranties can vary depending on the provider and the plan purchased. Generally speaking, however, they cover items such as: 

  • Refrigerator 

  • Oven or stovetop

  • Washing machine

  • Clothes dryer

  • Dishwashers

  • Garage door systems

  • Garbage disposals

  • Other small appliances 

  • Heating and cooling systems 

  • Electrical systems

  • Plumbing 

  • Ductwork

  • Water heaters

  • Pre-existing conditions 

  • Pools and spas (depending on the provider) 

  • Roofs (depending on the provider)

This list isn’t exhaustive, and in some cases, customers may be able to add extra coverage for items not included in their plan, as well as discounts for repairs and replacements. For more information, check out this list of what a home warranty covers.

How Much Does a Home Warranty Cost?

A home warranty usually has two main costs—both of which are not tax deductible. 

The first cost is your premium, which can be paid monthly, annually, or in some cases multiple years at a time. Usually, an annual premium is between $400 and $800, depending on the plan, your location, and the size and type of home. 

The second cost is a service fee, which is usually $60 to $150. This is payable when you make a claim. Some home warranty providers allow you to pay a lower service fee with a higher premium, or vice versa. 

» Here’s what you should know about a seller’s home warranty.

What is Homeowners Insurance?

Homeowners insurance covers your home if it sustains damage from disastrous events like fire, burglary, or extreme weather. You’ll need to make a claim after the event, and if accepted, the insurance company will reimburse you for your costs (up to a limit). 

This is often a compulsory purchase when you take out a mortgage. That’s because the damage incurred from such a disaster can be extremely expensive to rectify, and could even result in the loss of the home itself. 

What Does Homeowners Insurance Cover?

Homeowners insurance typically covers:

  • The structure of the home

  • Some contents of the home

  • Personal property

  • Loss of use

  • Medical payments

  • Personal liability

  • Burglary and theft

  • Fires and explosions

  • Windstorm and hail damage

  • Vandalism and malicious mischief

  • Water damage from plumbing, heating, air conditioning or a household appliance (not flood damage) 

The exact coverage provided by homeowners insurance can vary depending on your insurance provider. However, home insurance generally does not cover damage or repairs for a water heater, plumbing, or any appliances with normal wear and tear. That’s where a home warranty comes in.

» Want to cover your bathroom? These bathroom appliances are covered by home warranty.

How Much Does Home Insurance Cost?

Your home insurance costs are typically broken up into two separate parts: a premium and a deductible. 

Your home insurance premium is what you pay monthly or annually. S&P Global gives the average home insurance annual premium as $1,015 in 2019. The actual cost of your premium will vary according to the size and value of your home, as well as its location and the risks it faces. 

You’ll also pay a deductible fee if you make a claim. This is typically from $500 to $2,000, and it’s the amount taken out of your settlement amount once your claim has been filed and accepted. You may be able to adjust your agreed deductible to lower your annual premium.

How to Choose Between Homeowners Insurance and a Warranty

Homeowners insurance is often required if you have a mortgage, so you may not have a choice in the matter. Even with this in mind, homeowners insurance is a really good idea for these reasons:

  • Homeowners insurance covers the structure of your home in case of an accident, natural disaster, or other unexpected events

  • Homeowners insurance protects you from liability in the event of an accident occurring on your property

  • Homeowners insurance provides coverage for personal possessions such as furniture and electronics if they are stolen or damaged beyond repair

  • Having homeowners insurance can give real peace of mind in case the worst happens

Unlike home insurance, a home warranty is typically optional. Still, in deciding whether to purchase a home warranty, it’s important to consider whether you could meet the potentially unexpected cost of a sudden breakdown in your home. If not, a home warranty can be a good idea for several reasons:

  • A home warranty helps you save money on expensive repair costs

  • A home warranty offers peace of mind that your home will be in working order no matter what

  • A home warranty ensures that you don’t have to worry about the hassle of finding a reliable repair person

  • A home warranty can be customized to fit your budget and needs

Ultimately, choosing between a home warranty vs home insurance is a personal decision that should depend on your individual circumstances and coverage needs. Despite their differences, it may be best to invest in both if you have the budget. Each provides valuable protection and peace of mind in its own way, so make sure to evaluate your needs carefully and choose the coverage that best suits you.

» Check out these reasons to get a home warranty on an older home.

Who Should Buy a Home Warranty?

At this point, you may be wondering, "Should I buy a home warranty?" The answer is, probably. A home warranty is a good option for homeowners who want peace of mind that they can have repairs and replacements covered if their appliances or home systems break down. Homeowners who are considering buying home warranties should consider whether their homes are new or old, as well as how long they plan to stay in the home. The cost of an appliance breakdown can add up quickly, so for older homes or those with pre-existing conditions, a home warranty is often a wise investment.

Who Should Buy Homeowner’s Insurance?

Because a home warranty covers so much, your next natural question may be, “Do you need homeowners insurance?” If you’re a homeowner, then it's likely that the answer is yes. Homeowner’s insurance is a must for anyone who owns property, whether it be a house or an apartment. It is important to protect your home and possessions from unexpected damages such as fire, theft, and natural disasters. 

Bottom Line

Buying homeowners insurance is often a compulsory part of purchasing a property, and it’s also a really good idea to cover your property and contents in case of disaster. The costs of rebuilding your home or replacing your possessions could be astronomical, otherwise! But if you’re also concerned about vital appliances or systems breaking down through wear and tear, it could be worth adding a home warranty to your home protection plan, too. To find the best home warranty service for you, check out the reviews online to assess costs and benefits.

» Check out these 10 home items you should get an extended warranty on.

Catherine Miller
Catherine Miller is a lead member of personal finance and pension innovator Maji, where’s she’s responsible for content creation and running Maji’s personal finance masterclass, among others. Miller also holds degrees in English and education, and worked as a teacher before moving into writing about finance for Top10. Today, she combines aspects of education and personal finance to help readers make better decisions in finance and beyond.