When buying a house or looking for new coverage for your current home, you’ll hear about home warranties and home insurance. While both protect against expensive repairs, they aren’t the same coverage.
As a homeowner, you want the best protection for the most significant purchase of your life. Understanding the similarities and differences between a home warranty and a home insurance policy can help you make the best decisions for your situation.
On a basic level, a home warranty is a type of home service contract that covers broken or malfunctioning home appliances and systems due to normal wear and tear or aging. Meanwhile, home insurance covers your home’s structure and your belongings from unexpected or accidental damage from external forces.
Let’s dive deeper into how these two types of coverage work, what they cover, how much they cost, and whether you should get them.
The Differences Between a Home Warranty and Home Insurance
Warranties help pay to repair or replace your home’s appliances and systems against expected damage. On the other hand, home insurance covers your whole house against specified events (perils) that cause unexpected damage.
Home insurance can cover appliances, but this is only from sudden damage outside of normal wear and tear. And although some home insurance providers also offer home warranties, there is no warranty in insurance. The two are separate contracts.
Other differences between the two types of protection are that:
- Home warranties aren’t required, while mortgage lenders require home insurance.
- Home warranties can be transferred from one homeowner to the next, while you cannot transfer home insurance.
- Home warranties protect only parts of your home, while home insurance covers more of your property and can also include personal liability coverage. This coverage helps pay legal and medical costs if you or someone under your insurance accidentally injures someone or causes damage to their property.
However, some similarities between the two are that:
- Both protect parts of your home against damage.
- Both aren’t legally required to own a home.
- Both require monthly or annual payments in exchange for coverage.
- Both are recommended for most homeowners.
- Both typically use 12 month policy periods.
- Both have coverage limits.
Additionally, a home warranty can complement home insurance by providing coverage where home insurance doesn’t: expected damage from wear and tear.
So, while the two types of coverage aren’t the same, they are compatible.
How Home Warranties Work
Signing a home warranty contract means you agree to pay your warranty company monthly or annually. In exchange for these payments, you’ll only have to pay a low service fee when you file a claim.
If you get a home warranty from a real estate transaction, the warranty will usually start immediately after you close your new home.
But if you buy a home warranty on a house you already own, it could take up to 30 days for the coverage to begin, depending on the company.
Once coverage starts, here’s how it works:
Imagine one of your covered appliances or systems malfunctions or stops working, like a dishwasher or the plumbing system.
You call and file a claim with your home warranty company, which then sends a certified contractor to your home to evaluate the issue.
The contractor looks at the appliance or system to determine if the problem meets the following criteria:
- The home warranty covers the damage.
- Normal wear and tear or aging caused the damage.
If the situation meets both criteria, the contractor may make the repairs for a one-time payment as a service call fee. If the appliance or part of the system needed replacement, the service call fee may have covered a replacement.
Home Warranty Coverage Limits
Your home warranty may also come with annual coverage limits that vary from company to company. Coverage limits restrict the amount the company will pay for a claim.
Some warranty companies may limit the coverage amount per appliance or system, such as a maximum of $1,000. Other companies may have different coverage limits for different appliances and systems, such as $500 for a washer and $1,500 for an HVAC system.
How Home Insurance Works
Similar to a home warranty, home insurance involves filing a claim but for unexpected damage.
If a peril covered by your home insurance policy damages your home’s structure or something you own, you can file a claim online or on the phone with your agent.
Your insurance provider will send an insurance adjuster to your home to investigate the claim and report back to the provider.
If your provider approves your claim, they help cover the cost to repair or replace the damage, whether it’s a broken window or ruined sofa.
Home Insurance Deductibles and Coverage Limits
Before your insurance steps in, you have to pay a deductible. Your standard deductible is the amount you agree to pay when you file a claim before insurance makes a payment.
For example, if you have a $1,000 deductible and file a claim for $2,500 in repairs, you’ll pay $1,000 out of pocket, and your insurance provider will pay the remaining $1,500.
Home insurance also has coverage limits. A coverage limit is the maximum amount a provider will help you pay after your deductible.
You will have a different coverage limit for your home’s structure, other structures (like a fence or shed), personal property (your belongings), additional living expenses, and personal liability.
Review your declarations page or call your insurance agent to find out your coverage limits.
What’s Covered Under a Home Warranty?
As we’ve said, home warranties cover your appliances and home systems from normal wear and tear and aging. They are useful after your manufacturer warranty (or extended warranty) runs out.
A warranty won’t cover cosmetic damage, though, as normal wear and tear doesn’t cause damage like dents or scratches.
Warranties may offer the following three coverage options:
- Coverage just for appliances
- Coverage just for home systems
- Coverage for both appliances and home systems
The Appliances Covered Under a Home Warranty
What your warranty covers depends on the company and your contract, but you can usually expect coverage for:
- Washers
- Dryers
- Refrigerators
- Microwaves
- Stoves and ovens
- Dishwashers
- Garbage disposals
- Furnaces
Important: Some parts of appliances are often excluded from warranty coverage because they break down often. For example, while your fridge may be covered, its ice maker may not be.
The Home Systems Covered Under a Home Warranty
As with appliances, the home systems your warranty covers depends on the company and your contract. Systems you can usually expect coverage for are:
- Plumbing
- HVAC (heating, ventilation, air conditioning)
- Electrical system
- Water heater
Additional Home Warranty Coverage
If you have more appliances or systems than your home warranty covers, you might be able to pay extra for more coverage. Such add-ons can include more than one of an appliance (such as a second fridge) or the following:
- Pool systems
- Sprinkler systems
- Septic systems
- Water well pumps
- Ice makers
Keep in mind that the add-ons available to you will vary by company.
What’s Covered Under Home Insurance?
Home insurance protects against sudden and unexpected damage. A standard policy provides coverage for:
- Your home’s structure (dwelling coverage)
- Your property’s other structures (other structures coverage)
- Your personal belongings (contents coverage)
- Medical and legal costs for damage you or a household member cause (personal liability coverage)
- Extra cost of living fees when a claim displaces you from your home or part of it (additional living expenses or loss of use coverage)
Coverage varies by provider, but the most common policies cover damage from:
- Wind and hail
- Fire, lightning, and smoke
- Snow, ice, and sleet
- Frozen pipes
- Theft and vandalism
- Civil disturbances
- Vehicles and aircraft
- Explosions
- Electrical current (like downed power lines)
- Falling objects (like a tree)
- Sudden and accidental water damage
However, standard home insurance excludes flood and earthquake coverage, so if you live in an area vulnerable to these events, you’ll want to get a separate flood or earthquake policy.
At OpenHouse Home Insurance, we also offer optional extra coverages like golf cart coverage, animal liability coverage, ordinance protection, HOA assessments, and more.
Cost of a Home Warranty
When you buy a home warranty, you’re basically purchasing a discounted repair or replacement cost for your appliances or home systems. You’ll pay a monthly or annual fee plus a service fee for each claim you make.
Monthly home warranty payments range from about $20 to $60 or more, depending on the company and plan you choose. The average annual payment is about $600, for an average monthly payment of about $30.
Service fees range from about $55 to $150. If the claim is for a covered appliance or system, the contractor will fix the problem at no additional cost.
The lower your service fee, the higher your monthly payment will be. Conversely, the lower your monthly payment, the higher your service fee.
Cost of Home Insurance
How much your home insurance costs depends on several variables, including:
- The state you live in
- Your provider and policy
- The cost to rebuild your home
- The value of your belongings
- The condition, size, and features of your home
- The deductibles and coverage limits you choose
- Any extra coverages you add
- Your claim history
- Your credit score
- Your marital status
The national average premium is about $1,900 yearly with a home rebuilding cost of $200,000, but this number varies widely by state. Also, the higher the cost to rebuild your home, the higher your premium will likely be.
If you need to lower your premium, you can do so by increasing your deductible, but don’t make it higher than what you would be able to pay in an emergency.
You can also lower your premium by making safe home choices, like adding wind mitigation features to protect against high winds.
With OpenHouse’s online policy builder that lets you fully customize your coverage, you can make safe choices and only pay for what you need. You can even earn rewards that discount your premium for lifestyle decisions like owning a pet, being a gym member, or owning smart devices.
Do You Need a Home Warranty and Home Insurance?
After reviewing the differences between a home warranty vs home insurance policy, you can see how both work together to protect your home. But, you don’t necessarily need both.
We recommend all homeowners to have home insurance, whether or not your mortgage lender requires you to. If a devastating loss occurs to your home, you’ll want the coverage to help pay for the repairs.
Do you need a home warranty if you have homeowners insurance?
You’re never required to own a home warranty, but it’s smart to get one along with home insurance if any of the following are true:
- Your home has older appliances or systems with expired manufacturer warranties.
- You don’t have the savings to pay large, untimely expenses if appliances or systems fail.
- You don’t have time to look for your own reputable contractor for repairs.
- You have an older HVAC system, which can be particularly expensive to replace.
On the other hand, you may not want to purchase a home warranty right away if:
- You have mostly new appliances and systems that have active manufacturer warranties and are unlikely to break down soon.
- Your best warranty options have too many exclusions or restrictions to be worth the cost.
- You prefer to find your own reputable contractors.
The Right Amount of Protection for Your Home
Home warranties and home insurance exist to reduce the financial burden of repairs and replacements when something goes wrong. Having both types of coverage will give you peace of mind and can save you thousands of dollars.
But, as with most home decisions, how you choose to protect your home depends on your circumstances.
And no matter what, always review your home warranty contract or home insurance policy carefully. Reading the fine print and asking your provider for clarification about coverage are best practices for ensuring you don’t have too little or too much protection for your home.