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Home Warranty vs. Home Insurance

Holly Johnson | January 20, 2022

There are plenty of required expenses to cover when you’re a homeowner, and home insurance is just one of them. But, you may also be offered a home warranty when you buy a home — either to purchase yourself or as a complimentary benefit for the home you’re buying.

If you’re a new homeowner, this can be incredibly confusing. After all, what is the difference between home insurance and a home warranty? We know both can help protect against high costs when specific events in your home take place, but how are these two products different?

The first thing you should know is the fact you have to buy one but you don’t necessarily need the other. Where home insurance is required by your mortgage company and absolutely essential, home warranties are optional.

What are the other differences between home insurance and home warranties? This guide explains how each of these products works, their pros and cons and why they are important.

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What is a Home Warranty?

A home warranty may not be required when you’re a homeowner, but having one can give you a ton of peace of mind. But, how does a home warranty work exactly?

According to home warranty provider American Home Shield, a home warranty is a “year-long, renewable home service plan that keeps you protected should a covered breakdown occur.” While the components of your home covered by a home warranty can vary depending on the plan you choose, your warranty can kick in to cover repairs or replacement of major systems and appliances in your home.

In that sense, a home warranty works in conjunction with your homeowners insurance since it protects items your home insurance doesn’t.

If you’re considering a home warranty, you’ll want to make sure you compare a few different providers. In addition to American Home Shield, other popular companies to check out include America’s 1st Choice Home Club, Complete Care Home Warranty, Cinch Home Services and Select Home Warranty.

How much do home warranties actually cost?

The cost of a home warranty varies depending on the breadth of coverage, the company you choose, the specifics of your home or property and more. However, the average home warranty plan runs homeowners anywhere from $200 to $800.

What Does a Home Warranty Cover?

Note that you can tailor your home warranty to your needs by opting to have a larger range of home systems and appliances covered in your plan. With Complete Care Home Warranty, for example, you can buy a home warranty plan that covers appliances only, systems in your home only or both.

You should also know upfront that the systems and appliances covered in your home warranty will vary from company to company. With that being said, home warranties usually cover household appliances and systems such as:

  • Electrical Systems: Wiring, fuse boxes and outlets
  • Plumbing: Water heater, pipes, well and septic pump
  • Heating and Cooling: A/C units, heat pumps and heating systems
  • Appliances: Washer and dryer, refrigerator, oven, range and microwave

Many home warranty companies also let you elect additional coverage for additional home systems you want to protect. Add-on coverage options can include:

  • Coverage for pools and hot tubs
  • Warranty protection for well pumps and septic pumps
  • Roof leak coverage
  • Protection for electronics and gaming equipment

[adpractitioners-embed type=”widget” pcuid=”t3c5e453162a”]

Pros and Cons of a Home Warranty

A home warranty may feel like a waste of money if you don’t use it, but it can also feel like an excellent deal if a major system of your home breaks down. Either way, here are some of the advantages and disadvantages that come with home warranty coverage:

[adpractitioners-embed type=”money-component” uuid=”c3503689bb38″]

What is Home Insurance?

Home insurance is different from a home warranty in the fact that this type of coverage is not optional for most people. If you have a mortgage on your home, your mortgage company will require you to have home insurance in place at all times. If you drop coverage or have a lapse in coverage, your mortgage company can even purchase “forced-place insurance” on your behalf and bill you or pay for it out of the escrow account tied to your mortgage.

Home insurance also provides different coverage from home warranties. When you buy home insurance, you’re purchasing protection against damage to your home and other structures on your property. If your entire neighborhood catches on fire and your home is burnt to the ground, for example, your home insurance policy can help make you whole.

Generally speaking, home insurance intends to cover weather, theft, fire, and other damage while providing some types of financial protection for the homeowner.

In the meantime, your home insurance will not kick in to pay for a washer or dryer that breaks down. That’s what home warranties are for.

[adpractitioners-embed type=”widget” pcuid=”pc23dc4c7c68″]

What Does Home Insurance Cover?

While home insurance policies can vary in terms of what they cover, the bulk of policies provide protection for:

  • Your personal belongings
  • Your home and any other structures, like a shed or a guest house
  • Fire, water, and weather damage
  • Damage to someone else’s property
  • Medical bills if someone is injured while on your property
  • A place to stay if your home becomes unlivable

In addition to these core coverages, home insurance companies typically let you customize your policy with select add-ons. For example, you can purchase additional coverage for:

  • Water backups in your home
  • Damage for underground service likes
  • Floods and earthquakes
  • Sinkholes
  • Sewer and drain backup

Like other types of insurance, home insurance policies can be altered to suit your needs and provide the protection you care most about. You can also tweak your coverage limits to make sure you’re paying for just enough insurance to replace your home in the event of a total loss.

If you’re in the market for home insurance, make sure to check out all the best homeowners insurance companies out there today. Some of our favorites include Lemonade, HomeInsuranceConnect, Liberty Mutual, Hippo, and Travelers.

Pros and Cons of Home Insurance

Homeowners insurance is required if you have a mortgage on your property, so it’s not like you have the choice whether to buy this coverage or not. However, there are still pros and cons that come with having a solid home insurance policy, including the following:

[adpractitioners-embed type=”money-component” uuid=”b9d63f2fb936″]

How Home Insurance Compares to Home Warranties

While you absolutely have to buy home insurance, you can choose to buy a home warranty only if you want to. This decision is one that shouldn’t be taken lightly, and it’s also one you should only make after studying how these two home products compare.

How does home insurance stack up to home warranties? The major similarities and differences are outlined below:

Home Insurance vs. Home Warranties

Home InsuranceHome Warranties
Provides peace of mindYesYes
Covers major perils to your  home, such as fire, weather, vandalism and theftYesNo
Can repair or replace appliances and home systems when they break downNoYes
Comes with liability coverageYesNo
Required YesNo

In many cases, a home warranty is the perfect supplement to a home insurance policy. This is based on the fact that home warranties can fill in the gaps home insurance doesn’t cover. With both types of coverage, you can keep repair costs down and avoid financial losses when certain situations take place.

For example, let’s say that your water heater explodes and causes thousands of dollars of water damage to your home. In this case, your homeowners insurance policy should cover the damage to your walls, floors and furniture.

However, home appliances are typically excluded from homeowners insurance policies. With a home warranty, however, you could have your water heater replaced while your home insurance kicks in to cover damages.

When to Buy a Home Warranty

Since home insurance isn’t normally optional, we won’t spend a lot of energy explaining why you need a policy. However, we do suggest doing your research to find the best home insurance coverage money can buy, and that you tailor your coverage limits and your deductible to your needs and budget.

But, when should you buy a home warranty? And, which situations really warrant having one anyway? Here are some scenarios where a home warranty can absolutely make sense:

  • You are willing to pay a predictable annual premium to stave off surprise repair bills
  • Working with specific contractors when something breaks down doesn’t bother you
  • You want maximum peace of mind as a homeowner
  • You are willing to jump through a few hoops before you can have a home appliance or major home system repaired or replaced
  • Your home is older and you anticipate major appliance or system breakdowns in the near future
  • You’re selling your home and you want to make it more valuable by offering a new home warranty to potential buyers

At the end of the day, you don’t have to buy a home warranty…but you may decide to do so anyway once you consider all the advantages. Home warranties don’t have to be expensive, and having one can lead to considerable savings if a major home system or appliance breaks down while your coverage is in place.

If you’re on the fence about buying a home warranty, it never hurts to shop around among the best home warranty companies to compare pricing and products. You may find one company offers the coverage you really want for a price you can afford, but you’ll never know unless you take the time to check.

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About the Author

Holly Johnson is the founder of Club Thrifty, a personal finance and travel resource geared to families who want to make the most of their incomes while seeing the world.

She is also the co-author of budgeting book Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love. The book explains the step-by-step process behind zero-sum budgeting, which is the type of budget Johnson and her husband used to pay off debt in their 20's so they could begin building their investment portfolio in their 30's and 40's.

Before beginning a career in personal finance, Johnson worked in the funeral industry alongside her husband Greg. She attended Ball State University in Muncie, Indiana, and she was given the Best Contributor/Freelancer for Personal Finance at the 6th annual Plutus Awards Ceremony in 2015.

Johnson is an investment expert who built and manages her own seven-figure portfolio, and she frequently writes about various investment strategies as a result. She also covers credit cards, loans, insurance and other banking topics for publications like Forbes, CNN Underscored, U.S. News and World Report, Bankrate, and more.

Highlights:

*Award-winning personal finance writer
*Author of budgeting book, Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love
*Owner of finance and travel site ClubThrifty.com
*Owner of freelance writing course, EarnMoreWriting.com
*Regular contributor to CNN, Forbes, Bankrate, and more

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