Home Warranty vs. Home Insurance: What’s the Difference?
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Home warranties and home insurance are two distinct types of coverage that protect homeowners from financial loss, but they serve different purposes. While both offer valuable protection, understanding their key differences is crucial for making informed decisions about your home’s safety and your financial security. This comprehensive guide will explore the nuances of home warranties and home insurance, helping you determine which coverage best suits your needs or whether a combination of both suits your situation.
What Is a Home Warranty?
A home warranty, also known as a residential service contract, is a plan that covers the repair or replacement costs of major home systems and appliances when they break down due to normal wear and tear. This type of coverage gives homeowners peace of mind, knowing that unexpected repairs won’t lead to significant out-of-pocket expenses.
Coverage Provided by Home Warranties
Home warranties typically cover the mechanical components of your home’s systems and appliances. When a covered item fails, the warranty company sends a qualified technician to assess the problem and, depending on the specific circumstances and policy terms, either repair or replace it.
Most home warranty providers offer different levels of coverage, allowing homeowners to choose a plan that best fits their needs and budget. These plans often include the following:
- Appliance plans: Cover common household appliances, such as refrigerators, ovens, and washing machines
- Combination plans: Offer coverage for both systems and appliances
- Systems plans: Cover major home systems, such as heating, cooling, plumbing, and electrical
Common Items Covered Under Home Warranties
While coverage can vary between providers, most home warranties typically include protection for the following items:
- Air conditioning systems
- Dishwashers
- Dryers
- Electrical systems
- Heating systems
- Ovens and ranges
- Plumbing systems
- Refrigerators
- Washing machines
- Water heaters
Many home warranty companies also offer optional add-ons for pools, spas, and additional appliances.
Typical Costs of Home Warranties
The cost of a home warranty can vary depending on the level of coverage, the home warranty provider, and your location. On average, homeowners can expect to pay between $200 and $1,800 per year for a home warranty plan.
In addition to the annual premium, home warranty holders typically pay a service fee or deductible each time they request a repair. These fees usually range from $75–$150 per service call.
What Is Home Insurance?
Home insurance, also known as homeowners insurance, is a policy that protects your home and personal belongings from damage or loss due to covered perils. Unlike a home warranty, which focuses on internal systems and appliances, home insurance primarily covers the structure of your home and your personal property.
Coverage Provided by Home Insurance
A standard home insurance policy typically includes several types of coverage:
- Additional living expenses coverage: Helps with costs if you need to relocate temporarily due to covered damage
- Dwelling coverage: Protects the structure of your home
- Liability coverage: Provides protection if someone is injured on your property
- Other structures coverage: Covers detached structures, such as garages or sheds
- Personal property coverage: Protects your belongings inside the home
Common Perils Covered by Home Insurance
Home insurance policies generally cover losses caused by specific perils, which may include the following:
- Falling objects
- Fire and smoke damage
- Lightning strikes
- Theft and vandalism
- Water damage from sudden and accidental discharge
- Windstorms and hail
Standard home insurance policies typically don’t cover damage from floods or earthquakes. These require separate policies or endorsements.
Typical Costs of Home Insurance
The cost of home insurance can vary widely based on factors, such as your home’s location, age, construction type, and the amount of coverage you choose. On average, homeowners can expect to pay between $900 and $1,800 per year for a standard policy. However, prices can be significantly higher in areas prone to natural disasters or for high-value homes.
*Cost data from Angi
Differences Between Home Warranties and Home Insurance
Both home warranties and home insurance policies are great ways to protect your house, with each offering unique benefits and covering different circumstances. Here’s a chart comparing the cost and details of the two types of coverage.
| Comparison | Home Warranty | Home Insurance |
|---|---|---|
|
Coverage |
Repairs and replacements to major systems and appliances, such as your air conditioner, refrigerator, and dishwasher |
Dwelling, other structures, personal property, loss of use, liability, and medical payments to others |
|
Average yearly cost |
$540–$865 |
$1,311 |
|
Average cost of service fee |
$75–$125 |
None |
|
Average length of contract |
One year (though some companies offer multiyear contracts) |
One year |
|
Renewed annually? |
Yes |
Yes |
|
Required? |
No |
Not required by law, but required by most mortgage lenders |
Read more: Overview of Home Warranty Agreements
When To Choose a Home Warranty
Home warranties can be beneficial in certain situations, offering peace of mind and potential cost savings.
Benefits of Home Warranties for Older Homes
Older homes often have aging systems and appliances more prone to breakdowns. A home warranty can help manage the costs of frequent repairs or replacements, making it an attractive option for owners of older properties.
Home Warranties in Real Estate Transactions
Home warranties are frequently used in real estate transactions as a selling point. Sellers may offer one to attract buyers, while buyers might request one as part of the deal for added protection and peace of mind in their new home.
When Home Insurance Is Essential
While home warranties are optional, home insurance is often considered essential for homeowners.
Mortgage Lender Requirements
Most mortgage lenders require homeowners to maintain adequate home insurance coverage as a loan condition. This requirement protects the lender’s investment in the property.
Protection Against Major Disasters
Home insurance provides crucial protection against major disasters, such as fires, severe storms, or theft. These events can cause significant financial loss, making insurance an important safeguard for homeowners.
Combining Home Warranties and Home Insurance
Many homeowners find that combining home warranties and home insurance provides the most comprehensive protection for their property.
Creating a Comprehensive Protection Plan
By having both types of coverage, homeowners can protect themselves against a wide range of potential issues. Home insurance covers sudden and accidental damage, while a home warranty addresses the wear and tear of systems and appliances.
Potential Cost Savings and Benefits
While maintaining both policies involves additional costs, it can potentially save money in the long run by reducing out-of-pocket expenses for both major disasters and routine breakdowns. This comprehensive approach can also provide greater peace of mind for homeowners.
Common Misconceptions About Home Warranties and Insurance
Understanding what these policies do and don’t cover can help you make informed decisions about your home protection strategy.
What Home Warranties Don’t Cover
Home warranties typically don’t cover the following items:
- Cosmetic defects
- Damage from natural disasters
- Improper maintenance
- Pre-existing conditions
- Structural issues
Limitations of Standard Home Insurance Policies
Standard home insurance policies often exclude coverage for the following items:
- Certain valuable items without additional coverage
- Earthquake damage
- Flood damage
- Normal wear and tear
- Pest infestations
Our Recommendations for Home Warranties and Home Insurance
A home warranty plan from a trusted provider could provide peace of mind that your appliance or system will be fixed after a breakdown. We’ll give our recommendations for the top home warranty companies as well as the best homeowners insurance company below.
Home Warranty Recommendations
Our research shows that American Home Shield and Select Home Warranty offer the best warranty coverage for most homeowners.
American Home Shield
American Home Shield (AHS) offers the best home warranty coverage overall. As an industry veteran, this provider has been serving homeowners for more than 50 years. AHS offers three comprehensive plans and allows customers to choose between a $100 and $125 service fee. AHS also covers types of damage that most providers lack, including improper installation and repair, insufficient maintenance, rust, corrosion, and sediment. AHS offers coverage throughout the continental U.S. and in Hawaii.
Select Home Warranty
Select Home Warranty offers plans as low as $44 per month, which is affordable compared to the industry average of $44–$72 per month. This provider also offers two free months of coverage and limited roof-leak repair, which most home warranty companies lack. Additionally, Select is available in all states other than Nevada, New York, Washington, and Wisconsin and offers discounts on multiyear plans.
Home Insurance Recommendation
We find Lemonade to be the best choice for homeowners seeking a home insurance policy.
Lemonade
If you’re looking for a top home insurance provider, we recommend Lemonade. Although this company is new to the home insurance industry, it’s created a unique insurance experience. For example, Lemonade allows individual endorsements on items, such as bikes and cameras, while allowing you to set the amount of coverage for each item.
Our Conclusion
Home warranties and home insurance serve different but complementary roles in protecting your home and finances. While home insurance is essential for safeguarding against major disasters and liability issues, a home warranty can provide valuable coverage for the everyday wear and tear of home systems and appliances.
Ultimately, the decision to purchase a home warranty, rely solely on home insurance, or combine both types of coverage depends on your individual circumstances, including your home’s age, budget, and risk tolerance. By understanding the key differences and benefits of each, you can make an informed choice that best protects your home and provides peace of mind.
FAQs About Home Warranties
How long do home warranties last?
Most home warranty contracts must be renewed every year, though companies such as AFC Home Warranty allow homeowners to enroll in multiyear plans for a reduced yearly rate.
What isn’t covered by a homeowners insurance policy?
While homeowners insurance is comprehensive, it doesn’t cover everything. Below is a list of common items or events that aren’t covered by a homeowners insurance policy:
- Earthquakes
- Ordinance or law
- Intentional loss
- Governmental action
- Mischievous acts
- Flood damage and sewer backup
- Slow leaks
- Top pest control services
Who offers the cheapest homeowners insurance?
Amica, Lemonade, and Travelers gave us some of the most affordable home insurance quotes, priced below the national average of $109 per month.
Best Home Warranty Companies by State
Our Rating Methodology
We back up our home warranty ratings and recommendations with a detailed rating methodology to objectively score each provider. We conduct research by speaking with company representatives, requesting quotes, analyzing sample contracts from each company, and conducting focus groups and consumer surveys. We then score each provider against our review standards for coverage, cost, trustworthiness, plan transparency, customer support, and flexibility to arrive at a final score on a 5-point rating scale.
To share feedback or ask a question about this article, send a note to our Reviews Team at reviews@thisoldhousereviews.com.
