Home insurance & warranties
Home warranty vs. homeowners insurance: what each one covers
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- Homeowners insurance covers sudden damage from events like fire, wind or theft. It does not cover things that simply wear out.
- A home warranty is a service contract that pays to repair or replace covered systems and appliances that break from normal use.
- Lenders usually require homeowners insurance. A home warranty is always optional.
People mix these two up all the time, and that confusion can lead to a denied claim. The simplest way to remember the difference: insurance is for sudden events, warranties are for wear and tear.
What homeowners insurance covers
A standard homeowners policy typically includes:
- Dwelling: the structure of your home, if damaged by a covered event such as fire, windstorm, hail or a burst pipe.
- Other structures: detached garages, fences and sheds.
- Personal property: your belongings, at home and often away from home.
- Liability: if someone is injured on your property or you damage someone else's property.
- Additional living expenses: hotel and meal costs if a covered loss forces you out of your home.
Floods and earthquakes are usually excluded and need separate coverage. Gradual damage, such as a slow leak or an aging roof, is generally not covered either.
What a home warranty covers
A home warranty is a contract with a warranty company, not an insurer. Plans commonly cover major systems such as heating, air conditioning, plumbing and electrical, and often appliances such as the water heater, refrigerator, dishwasher and washer and dryer. Plans differ widely, so the contract's list of covered items is what counts.
When something breaks, you contact the warranty company, it sends a technician, and you pay a set service fee for the visit. If the item is covered, the company pays for the repair or replacement up to the plan's limits.
Side by side
| Homeowners insurance | Home warranty | |
|---|---|---|
| Covers | Sudden damage from covered events, plus liability | Breakdowns of covered systems and appliances from normal wear |
| Cost structure | Premium plus a deductible per claim | Monthly or yearly fee plus a service fee per visit |
| Required? | Usually required by mortgage lenders | Optional |
| Regulated as | Insurance, by your state insurance department | A service contract, with rules that vary by state |
| Example | A storm knocks a tree onto your roof | Your 12-year-old water heater stops working |
What to check in a home warranty contract
- Coverage caps: many plans limit how much they will pay per item or per year.
- Exclusions: improper installation, code violations, lack of maintenance and pre-existing problems are common exclusions.
- Waiting period: coverage often starts some time after you sign up, commonly around 30 days.
- Service fee: what you pay per visit, and whether it applies again if the first repair does not fix the problem.
- Technician choice: whether the company assigns a contractor or you can choose your own.
- Replacement terms: whether the company can offer cash instead of a replacement, and how much.
Do you need both?
Homeowners insurance protects against the big, unpredictable losses, and it is usually a requirement if you have a mortgage. A home warranty is a budgeting tool. It can make sense if your systems and appliances are older and a surprise repair bill would strain your budget. If your appliances are new and still under manufacturer warranty, or you have a solid repair fund, you may not need one.