Home Warranty vs. Home Insurance

Quick Answer

Homeowners insurance protects the structure of your home, covers liability and provides additional living expenses, while home warranties cover internal parts of the home like HVAC or electrical.

Home insurance agent helping clients at their dinner table sitting in their home.

Both home insurance and home warranties can help provide financial coverage for different aspects of your property—but they're not the same. While homeowners insurance is key in case your home is damaged by a major disaster, a home warranty may protect you if systems such as your home's HVAC were to fail.

Should you buy both and what kind of coverage can you expect? Here's what you need to know about the difference between home insurance and home warranties.

What Does Homeowners Insurance Cover?

Homeowners insurance protects you from large-scale losses related to your home and surrounding property. Though not required legally, it is recommended that homeowners carry insurance. If you have a mortgage, your lender may require that you carry a policy.

Homeowners insurance often covers unexpected damages to the structure of your home, such as a fire or damage caused by a wind storm. But coverage is more wide-ranging than just the physical structure of your home. Homeowners insurance provides four types of coverage:

  • Liability protection: Financial coverage if someone is injured on your property to help with their medical bills
  • Home structure: Coverage for damage done to your home under specified categories
  • Personal belongings: Coverage for personal belongings lost or damaged in covered events that damage your home
  • Additional living expenses: Financial protection if you must vacate your home and stay elsewhere while your home is repaired

Eligible events—also described as known perils—that may be covered by homeowners insurance include:

  • Fire and smoke damage
  • Wind, hail or lightning
  • Water
  • Vandalism or theft

Some events are excluded from most homeowners insurance policies. For example, damage from flooding is typically covered under separate flood insurance.

Homeowners insurance cost $1,435 on average in 2022, according to insurance comparison site Gabi®, a part of Experian. You may be able to combine the cost of your homeowners insurance into your monthly mortgage payment to make budgeting easier.

What Does a Home Warranty Cover?

Home warranties can cover the normal wear and tear of the elements and systems in your home. These are things not typically covered by home insurance because they fall under normal maintenance.

Some things a home warranty might cover include:

  • HVAC systems
  • Plumbing
  • Electrical
  • Water heater
  • Ducts
  • Some appliances
  • Garbage disposal
  • Garage door opener

Replacing some appliances, such as refrigerators, may come with an additional cost. Similarly, specialized systems like swimming pools may also require extra fees.

When you call a service provider to fix something under warranty, you'll generally pay a service fee of about $75 to $125, but the majority of the bill should be covered. You will be limited to selected contractors covered by the warranty.

The average home warranty costs $300 to $600 per year. When you consider that an HVAC repair typically costs $85 to $150 per hour in labor plus parts or a new dryer can cost $1,000 or more with installation, a home warranty may be financially attractive. With one claim alone you could easily recover the annual cost of a home warranty and then some.

That said, home warranties often have exclusions that may limit their effectiveness. They may not cover repairs if the company determines that improper maintenance was to blame for the problem, or if the problem was caused by pests or a botched installation. You may also not have much say in equipment used by the home warranty company for repairs. Read over your contract carefully if you are considering a home warranty.

Should You Buy Home Insurance or a Home Warranty?

When you're looking to financially protect your home, it may be tough to decide how much coverage you need and which items to buy.

A simple rule of thumb when deciding to purchase home insurance is that if you cannot self-insure, you should purchase insurance. Self-insuring is the practice of setting aside savings equivalent to the amount needed for rebuilding your home and replacing your belongings in the case of a catastrophic loss related to your home. Most people would not be able to do that, so home insurance is strongly encouraged.

Home warranties don't make sense for every homeowner, but they may be a smart add-on for some, especially if you have some bigger home expenses coming up and you don't want to pay out-of-pocket for them. Buying a home warranty makes sense for:

  • Homes with older systems or appliances
  • Homeowners who haven't built up a home emergency fund yet
  • Homeowners who don't want to coordinate repairs and want someone else to manage the service people to do repairs

Protecting Your Home

Your home is an investment—but sometimes it can feel like a wallet drain. By properly covering parts of your home you can avoid paying out sudden expenses. Still, you should take all possible steps to make sure the structure and systems are properly maintained and repaired.

Finding the best home insurance is integral to protecting your budget now and your home in the event of a catastrophe. You can easily get multiple quotes for homeowners insurance from Gabi, a part of Experian, without having to hunt them down yourself.