- While both protect your property, home insurance and home warranties accomplish it in different ways and at varied costs.
- Home insurance covers unforeseen damage to your house and belongings, plus your living costs if you’re displaced.
- Home warranties cover wear and tear to household appliances and systems, and you’d document mishaps to file claims much like with home insurance.
- Supplementing your insurance with a warranty makes sense in some situations, including if a broken appliance or two would break your budget.
Homeowners insurance and home warranties can protect your most valuable asset, but they do so independently.
If a tree falls on and damages your air conditioning system, that’s a potential home insurance claim. If your air conditioner simply stops working, however, that’s a likely submission to your home warranty provider.
“If I get 10 seconds with a consumer, I describe it that way,” says Art Chartrand, legal counsel for the National Home Service Contract Association, a trade organization that vets warranty providers.
Home insurance is typically required by mortgage providers, and it covers “fortuitous” or “perilous” events, industry-speak for unforeseen accidents or incidents like fire damage or vandalism. Optional warranties, however, mostly help homeowners avoid costs that are easier to anticipate: broken-down appliances or home systems.
Let’s break down home insurance versus warranties, including what they cover and whether you need both.
Inside this article
Home insurance vs. home warranty: What are the differences?
Home insurance is usually a must-have for homeowners. If you don’t own your home outright, your lender will require you to insure your property. And even if you have already paid your mortgage off, home insurance protects you from having to pay out-of-pocket if a major event—such as a fire or severe weather—damages your property.
Just because you already have home insurance, however, doesn’t mean you should necessarily skip a home warranty. To understand how these products compare, see the table below.
|Home insurance||Home warranty|
|Purchaser||Homeowner||Homeowner or, in some home sales, the seller|
|Cost||Varies widely, but the average annual cost is $1,249, according to the National Association of Insurance Commissioners’ latest data||$500 and up for basic coverage|
|Term||12 months||12 months|
|Mandatory or optional||Mandatory (with most mortgages)||Optional|
|Coverage||Structural damage, loss of property and legal liability||Repair or replacing appliances, basic systems|
|Claims||Contact your insurance company and work with their claims adjuster||Document your issue and follow your provider’s instructions|
|Fine print||As with other types of insurance, lower deductibles equal higher premiums, and claims are subject to insurer review||As warranties don’t fully cover labor costs, you’re likely to see sub-$100 service charges for installing, repairing or maintaining covered items (plus, you likely won’t get to choose your contractor)|
What home insurance covers
Like other types of insurance, home insurance aims to protect you from the unexpected. The primary reason to be insured is to be protected from unforeseen damage to the dwelling itself, plus other structures on the property. Claims could originate from a fire, weather event, theft, vandalism or other chance occurrence.
Beyond the house itself, home insurance commonly covers:
Garages and guest houses
Permanent systems (such as central heating and cooling)
While home insurance can protect you from unique weather events like earthquakes and floods, you may need to add these contingencies to your policy. Depending on where you live, you may also be required to pay for separate but related types of coverage, such as flood insurance.
Home insurance also protects:
Your living expenses if you’re forced to relocate while your damaged home is being repaired or rebuilt.
Your belongings—such as valuable jewelry or electronic equipment—from damage.
Your liability if someone—perhaps a swimmer at your pool party or a contractor working on your house—gets injured while on your property. Home insurance could also cover their medical bills.
It’s wise to review your home insurance coverage at least annually to confirm you’re not underinsured. If you took on some remodeling projects that increased the value of your home, for instance, your insurance should reflect that new reality.
What home warranties cover
Home warranties can supplement your home insurance coverage. You might opt for a warranty, for example, if you’re buying or living in an older home with components that are near the end of their life expectancy.
Home warranties cover wear and tear to household appliances and your home’s basic operating systems, such as your:
Washer and dryer
Heating and air conditioning
Not all home warranties are created equal, Chartrand says, so be mindful that coverage varies by provider. If your HVAC system appears near the end of its life, for example, you might request quotes for warranties that cover repair and even replacement. Of course, the more exhaustive coverage you opt for, the more your premium will cost.
Home insurance vs. home warranty: Do you need both?
If you’re a homeowner and have a mortgage, you likely already have home insurance. It was required by your lender to finalize your home loan. You might even have opted for your lender to hold your insurance payments in an escrow account as part of your monthly mortgage payment.
The next question you might have in mind: Do you need a home warranty as well?
As mentioned, a warranty may pick up where your insurance leaves off. The most common scenario is that a warranty may cover aging appliances and basic systems that insurance will not. (Keep in mind the examples of an HVAC unit that stops working because a tree fell on it or that sputters out simply because it was old.)
There are other situations when it could make sense to purchase a home warranty, including:
Your savings account couldn’t handle the cost of repairing or replacing a key appliance.
You’re buying or own an older home with multiple appliances or systems that seem close to aging out.
You like the peace of mind of having anticipated repairs covered, as opposed to replacing appliances one at a time over the upcoming years.
Of course, there are also occasions where it might make sense to eschew these optional service contracts. For more on this topic, visit our related guide on whether home warranties are worth it.