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.
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
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:
- Helps families avoid surprise repair bills
- Protects home appliances and household systems that are not covered by home insurance
- Predictable premium and deductible if you use your plan
- Can purchase home warranty coverage regardless of the age of your home
- Some home warranty companies make you use specific contractors
- Extra hoops to jump through when an appliance or home system breaks down
- Won't cover damage to the structure of your home
- Not all appliances or systems are covered in every home warranty plan
- Costs more money on top of home insurance premiums
- Does not include coverage for theft or liability
- A deductible (normally $75 to $125) usually applies if you want to use your coverage
- Waiting periods can apply
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.
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
- 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:
- Provides peace of mind
- Can replace your home in the event of a total loss
- Covers major perils
- Can protect you against financial losses if someone is hurt on your property
- Can provide coverage for theft
- Doesn't cover repairs of your home's systems or appliances
- Can be expensive
- Deductibles (often $1,000 to $2,500 or more) apply to use your coverage
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 Insurance||Home Warranties|
|Provides peace of mind||Yes||Yes|
|Covers major perils to your home, such as fire, weather, vandalism and theft||Yes||No|
|Can repair or replace appliances and home systems when they break down||No||Yes|
|Comes with liability coverage||Yes||No|
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.