The Difference Between Home Warranty and Home Insurance

Rose Morrison

Oct 22, 2021


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Last Updated October 22, 2021

Becoming a homeowner brings on a host of new responsibilities and questions. After you sign a lease, it becomes your job to take care of your new house. 

Running a home is similar to running a car – it takes time, money, and dedication. Like with a vehicle, preventative care is the best way to keep costs down and lengthen the life of your home. 

There are multiple kinds of insurance you can buy to better care for your home. Read this definitive guide to learn more about the differences between home warranty vs. home insurance, and whether or not you need them.

Home Warranty vs. Home Insurance

Both home warranties and home insurance have a common goal – they both protect you from bearing the total financial burden of loss or damage to your property. However, these policies differ in terms of what they cover. 

For instance, a home warranty plan monitors systems and appliances in your house. If you have any problems with your plumbing, electricity, fans, or kitchen appliances, a home warranty policy will help you get repairs quickly. 

Home insurance covers the costs of damage to the structure of your home. It also protects you from property theft and being sued by anyone injured on or by your property. 

A Quick Guide to Insurance Lingo

Home warranties and home insurance policies frequently use language that can be confusing. To help you better understand your options, read through the following terms these companies often use: 

  • Premium – The amount of money you pay to an insurer. Typically, you pay insurance premiums every month. 
  • Deductible – The amount of money you’ll pay toward fixing a problem before your insurance company steps in to help. Plans with high deductibles usually have lower premiums. 
  • Claim – An official request asking your insurance company to help you cover the cost of something that went wrong. These typically require documentation.
  • Liability – When related to insurance, this term refers to the items that you’re responsible for. 
  • Rider – An add-on to a larger insurance plan. Riders cover something extra that isn’t included in the original plan’s coverage. 

What Do Home Warranties Cover?

A home warranty protects the systems and appliances that keep your home running. When you purchase a home warranty, you sign an annual contract that promises to help you repair or replace items that break. Contract length and coverage vary by company and plan. 

Home warranty companies work with contractors they can send to correct problems in your home quickly. They save you the time and effort it can take to research and contract contractors on your own. Paying contractors through your warranty service is also cheaper than hiring them on your own. 

Home Warranty Plumbing and Electrical Coverage

Two of the most essential systems in your home are the plumbing and electrical systems. As a homeowner, you need to monitor these systems carefully. A small leak, for instance, can add up to thousands of dollars of repairs if not dealt with quickly. 

Purchasing a home warranty makes it easy to get help for problems quickly. It can also cut down the cost of what you spend to maintain your home. 

Home Warranty HVAC Systems Coverage

Another important item included in most home warranties is your home’s HVAC system. HVAC stands for water heater, air conditioner, and ventilation systems. Without proper maintenance, these systems will eventually start to have problems and could shut down. Installing new water heaters or replacing air conditioning units can quickly become very expensive. 

Choosing a warranty that covers HVAC helps to keep your home clean and safe. It also ensures that you spend less while enjoying your home for longer. 

Home Warranties for Appliances

Appliances like your microwave, refrigerator, and oven may also be included in your home warranty plan. If you use these items on a regular basis, it’s a good idea to protect them with a home warranty. 

Appliance coverage is especially important for items you depend on every day.  Frequent use means that you’re more likely to need to replace an item. 

Home Warranty Roof Coverage 

You might want to consider choosing a home warranty that covers your roof if you live in an older home or have experienced leaks before. Roof coverage from a home warranty can help with the cost of repairing any damage from leaks. 

Because roof repair is expensive, many companies don’t offer this in basic warranty plans. However, some companies allow you to add roof coverage to your plan for an increase in your premium. Roof repairs and replacements are among the most costly home repairs, so including roof work in your home warranty plan may be wise. 

What Does a Home Warranty Cost? 

The total cost of a warranty plan depends on two factors: the condition of your property and the warranty plan you choose. If your house is in poor condition, there is more risk for the warranty company. A plan covering a damaged house will be more expensive than one covering a house in good condition. 

Home warranties usually cost between $350 to $600 a year for a basic plan. However, with add-ons, they can cost an additional $100 to $500 more per year. 

After paying the premium, you’ll also pay a fee to any contractors who work on your home under your warranty contract. Usually, these service fees range between $50-100 per item repaired. 

Talk with your warranty company to get more specific quotes about the total cost of their plans and service fees. 

Pros and Cons of Home Warranties

You might spend an extra $600 a year and never have anything in your home that needs repair. However, if something does break and you don’t have insurance, it’ll cost a lot more to fix it on your own. 

Make your own pros and cons list to decide if insuring your home is worth the annual cost of a home warranty plan. Look at plans from respected companies, and compare costs before you make a final decision. 

It takes a lot of systems to keep a home running, and a good policy will give you coverage on everything you need to keep your house working like a well-oiled clock. Each home warranty is different, so make sure the company and contract you choose include the specific items you want to be covered.

What Does Home Insurance Cover?

Home insurance is the same thing as homeowners insurance and can insure more than just your house. This kind of insurance covers three separate categories: damage to property, loss of property, and protection from personal liability. 

Home insurance protects from damage to your home from fire, vandalism, or specific acts of nature such as fire, lightning, or hurricanes. Flood or earthquake insurance may need to be purchased separately. 

If your property is stolen or damaged during a natural disaster, your home insurance may help you replace it. Generally, your premiums will reflect the total value of the items you’re insuring. People who own very valuable items such as art may want to purchase a special rider for them. 

Personal liability insurance protects you from being sued if someone gets hurt on your property. Types of harm covered can include falls, cuts, and sometimes even dog bites. 

If you have a loan or mortgage, you’re most likely required to have homeowner’s insurance. Insurance helps the bank have confidence that your property will stay in top shape until the loan is paid. 

Types of Home Insurance

Home insurance options are divided into three levels of coverage: 

Actual Cash Value

This insurance plan covers the cost of your home and belongings as they are valued now. This means that you’ll be covered for what your property is currently worth at any given time, not what it was worth when you bought the policy. This type of insurance is the lowest and cheapest tier of protection. 

Replacement Cost

This home insurance plan covers the cost of your home at its original value, without regard to depreciation over time. Coverage under this plan is more comprehensive than an actual cash value plan and thus more expensive. 

Guaranteed Replacement Cost

This plan covers all costs to rebuild or repair your home. Sometimes there’s a limit to how much this plan will finance, and sometimes there’s not. Also known as extended replacement cost, this plan is the most comprehensive and thus the most expensive. 

HO Levels

In addition to these three levels, there are eight different types of home insurance coverage. These are known as HO1 –- HO8 policies. For some reason, however, there is no HO7 policy!

Each of these plans is best suited to a specific homeowner situation. For instance, HO4 policies are for renters rather than homeowners. HO8’s are for historic homes that may have restrictions on updates. HO5’s are the most comprehensive policy for homeowners and usually fall into the replacement cost category. 

What Does Home Insurance Cost? 

Homeowner’s insurance is a little more expensive than a home warranty. Higher costs make sense because these plans cover more extensive types of damage. 

The average cost of home insurance in the U.S. was $1,312 per year in 2021. The average dwelling cost was around $250,000, meaning that customers chose plans insuring their homes up to $250,000. 

Home insurance costs depend on several factors, including your location and which company you choose. If your area is prone to natural disasters, for instance, your home insurance will likely be higher than if you lived in a low-impact area. Each state has a different average for how much home insurance costs. 

Top Home Warranty and Home Insurance Companies

There are many excellent home warranty and home insurance companies to choose from. Before choosing a plan, you should always compare rates and benefits between several different companies to find what best fits you and your home. Here’s are two short lists to help you get started in your search: 

Best Home Warranty Companies:

  • Choice Home Warranty
  • Select Home Warranty
  • Liberty Home Guard
  • American Home Shield
  • Landmark Home Warranty

Best Home Insurance Companies:

  • Lemonade
  • USAA
  • Amica
  • Allstate
  • State Farm

To find out how these companies treat customers, read reviews online and look at the Better Business Bureau’s website. You can also check to see if there are any companies specific to your region. 

Do You Need a Home Warranty and Home Insurance?

Unless you’ve paid off your house, you’re probably required to have home insurance. Even if you fully own your home, though, It’s a good idea to purchase home insurance. While these policies don’t protect you from every possible disaster, they protect against many things that could harm your home. 

Because home warranties cover different items, it’s a good idea to invest in them as well. They cost less than home insurance policies but preserve equally important home systems. 

If your home were a person, you could think of home insurance as protective armor and a home warranty as healthy food and vitamins. To keep your home safe and running well, you need to care for it inside and outside. 

So yes, both types of protection do matter. If you can afford it, go for both!

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