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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.

The two major types of home cover are homeowners insurance and home warranty. But which of these types of cover is right for you and your home? We run through the basics to help you decide. 

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. 

What does a home warranty cover?

A home warranty covers systems and appliances within the home. These can range from smaller appliances in your kitchen or bathroom, to your home’s plumbing or heating systems. You can often cover swimming pools or outdoor spas, too. You will usually be able to choose a package containing the particular systems or appliances you want to cover, and can often add one-off extras to your plan if you need to customize it further. The warranty will pay (up to a limit) for repairs (and often replacements) when a covered appliance or system has broken down due to normal wear and tear. 

It’s important to check the small print before you purchase, because not all parts of the appliance or system might be covered for repair. For example, cosmetic parts of some appliances, such as handles or buttons, may not be included. Most home warranties also don’t cover appliances or systems with pre-existing conditions, i.e. problems you know about at the time of purchasing your cover. And a home warranty won’t cover damage caused by a broken appliance, such as flood damage from a faulty washing machine. 

How much does a home warranty cost?

A home warranty usually has two main costs. The premium can be paid monthly, annually, or in some cases to cover 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, usually $60-$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. 

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 will usually cover the structure of the house and may cover contents as well. Some insurance packages may also cover general liability in case someone is injured on your property. Again, you should check the small print, because some disasters, like earthquakes or other “acts of God,” may not be covered. You may need extra insurance if you live in an earthquake zone, for example. And homeowners insurance won’t cover everyday wear and tear as a home warranty would. 

How much does home insurance cost?

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 will also need to pay a deductible fee if you make a claim;  your settlement amount, paid once your claim has been filed and accepted, will have your deductible taken out of it. This is typically $500-$2,000. 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 a condition of borrowing money to buy your home, so you may not have a choice in the matter. Even with this compulsory element in mind, homeowners insurance is a really good idea. The damage inflicted to the actual structure of your home by fire, storm, or other extreme events could be very costly to fix. Plus, your homeowners insurance may also cover the replacement of your belongings and injury to people inside the home. Having this kind of insurance can give real peace of mind in case the worst happens. 

When it comes to a home warranty, purchasing this type of cover is optional. The advantage of having a home warranty is that, if an important appliance or system breaks down, you can rest assured it will be fixed promptly by a trusted contractor. Additionally, the cost difference can be vast: repairing a broken air conditioning system could be very expensive when balanced against the annual premium you’d pay for a warranty. 

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. Additionally, you should think about whether the loss of an appliance or system would dramatically impact your life. For example, if you can’t live without air conditioning, it could be worth having a home warranty to be able to access quick, cost-effective repairs. 

If you have good reasons to purchase warranty cover, you could choose to invest in both a homeowners insurance policy and a home warranty. It’s worth bearing in mind that situations covered by homeowners insurance are not covered by a home warranty, and vice versa. So, having both may give you extra reassurance. On the other hand, you may decide not to purchase a home warranty, especially if your appliances and systems are older and already damaged, which could exclude them from cover. 

Conclusion

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.

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 finance. Today, she combines aspects of education and personal finance to help readers make better decisions in finance and beyond.