Home Warranty vs. Home Insurance

Is a Home Warranty the Same as Homeowners Insurance?

Home warranties and homeowners insurance are two different kinds of coverage that can complement each other to help protect your home.

A home warranty pays to fix or replace your home's systems and major appliances if they stop working during normal use. You purchase a contract with a home warranty company and file a claim when a covered appliance or system breaks down. The warranty company sends out a technician, who decides whether the item can be repaired or needs replacing. You typically pay a service fee for the technician's visit and may be responsible for other costs as well, depending on your coverage

Home insurance pays to repair or rebuild your home if it's damaged or destroyed by an event covered in the policy. Standard homeowners insurance also pays to replace personal possessions that are stolen or damaged by a covered risk. If you have to move out during repairs, homeowners insurance helps cover the cost of living elsewhere. Finally, it helps pay medical expenses if a visitor to your home is injured, plus legal costs if they sue you. However, home insurance doesn't cover damage to or breakdowns of your home's appliances or systems due to wear and tear.

Learn more >> How to Pay for Emergency Home Repairs

What Home Warranties Cover

The specifics of coverage can vary from one plan to another, but home warranties usually cover:

• Plumbing
• Electrical
• HVAC
• Water heater
• Ducts
• Garbage disposal
• Dishwasher
• Stove and oven

You may be able to purchase coverage for refrigerators, washing machines, dryers, spas and swimming pool pumps for an extra cost.

What Home Warranties Don't Cover

Home warranties generally don't cover:

• The physical structure of your home, such as the foundation or walls
• Appliances or systems not specifically listed in the warranty
• Damage caused by poor maintenance
• Damage due to insects or vermin
• Failure due to incorrect installation
• Appliances or systems that have been modified
• Anything you attempted to fix yourself and failed
• Failure due to problems that started before your warranty became active

You typically have no choice in the repair company that is used or the parts used in repairs.

If a system or appliance needs replacement, home warranties usually only pay to replace the item with a comparable new one. This means you won't be able to upgrade. In addition, some home warranties only pay the current value of the broken-down item rather than the total cost to replace it with a new one. You'd be responsible for paying the difference.

Who Should Buy a Home Warranty?

You may want to buy a home warranty if:

• Your home's major systems or appliances are no longer under a manufacturer's, builder's or credit card's warranty
• You couldn't easily afford to replace or repair a major appliance or home system
• You don't want the hassle of finding a repair company, comparing quotes or managing repairs and want someone else to handle it for you

What Home Insurance Covers

A standard home insurance policy provides four kinds of coverage:

1. Dwelling or structure coverage pays for repairs to your home's physical structure or rebuilding your home due to damage from fire, wind, smoke, lightning, hail, vandalism, theft and some kinds of water damage.
2. Personal possessions coverage pays for replacing your home's contents, such as appliances, clothing, furniture and electronics if they're destroyed, damaged or stolen in a covered event.
3. Liability insurance covers medical costs for visitors who are injured in your home, legal expenses if the injured person sues you and injuries you or your family cause to people or property outside your home.
4. Additional living expenses insurance helps cover the extra expense of living away from home if your home is declared uninhabitable due to a covered event, including takeout meals, hotel accommodations and pet boarding costs.

What Home Insurance Doesn't Cover

Homeowners insurance doesn't cover the following risks:

• Earthquakes
• Floods
• Sinkholes
• Sewer, septic tank or drain backups or sump pump failures
• Normal wear and tear to your home and its systems

Learn more >> What Is Not Covered by Homeowners Insurance?

Who Should Buy Home Insurance?

You should purchase home insurance if:

• Your home is mortgaged. Mortgage lenders generally require home insurance to protect their investment.
• You'd have trouble paying out of pocket to rebuild your home if it were destroyed by a major emergency.
• You'd struggle to pay for a major home repair, such as a falling tree smashing a hole in your roof.
• You want to protect your assets against lawsuits by visitors to your home or property.

Learn more >> Do You Have to Have Homeowners Insurance?

Do I Need a Home Warranty and Home Insurance?

Home insurance is generally essential; home warranties are not.

Although homeowners insurance isn't required by law, it's usually required by mortgage lenders. Even if your home is paid off, you need home insurance to protect your home and assets in case of a disaster or lawsuit. Without homeowners insurance, you'd be on the hook for the cost of rebuilding your home or paying off your mortgage.

Home warranties can fill gaps in your home insurance policy by covering wear and tear to a home's appliances and systems. However, many home warranties have significant exclusions. Make sure you know exactly what a home warranty covers before purchasing one and understand what actions could invalidate your warranty or cause a claim to be denied.

The Bottom Line

Home insurance and home warranty plans are two different options for protecting your home. Whether to buy both depends on your needs and budget. Setting aside money for home maintenance and repairs could give you more flexibility than paying for a home warranty. It could also help keep your home in good condition so you're less likely to have an insurance or warranty claim. Building a solid emergency fund can give you the resources to repair or replace appliances or systems when they break down.