Home Warranty vs. Homeowners Insurance

Homeowners insurance and home warranties both help with unexpected costs, so people often assume they overlap. They actually protect against very different problems. Understanding the difference helps you avoid gaps and avoid paying for coverage you do not need.

The short version

• Homeowners insurance pays for damage to your home and belongings caused by sudden events, such as fire, certain storms or theft. It also typically includes liability protection.
• A home warranty is a service contract that pays to repair or replace home systems and appliances that break down from normal wear and tear.

Put simply: insurance is for when something happens to your house. A home warranty is for when something in your house wears out.

What homeowners insurance covers

A standard homeowners policy generally includes:

• Dwelling coverage for the structure of your home.
• Other structures, such as a detached garage or fence.
• Personal property, such as furniture, clothing and electronics.
• Liability, if someone is injured on your property or you damage someone else's property.
• Additional living expenses if a covered event makes your home unlivable.

Covered events, often called perils, typically include fire, lightning, windstorms, hail, theft and vandalism, along with some types of sudden water damage. Floods and earthquakes usually require separate policies. Policies vary, so read yours to see exactly what applies.

If you have a mortgage, your lender almost certainly requires homeowners insurance.

What a home warranty covers

A home warranty covers the repair or replacement of major systems and appliances when they fail from normal use. Depending on the plan, that can include:

• Heating and air conditioning systems.
• Plumbing and electrical systems.
• Water heaters.
• Kitchen appliances like refrigerators, ovens and dishwashers.
• Washers and dryers.
• Optional add-ons such as pools, spas, well pumps or septic systems.

Home warranties are optional. They are often purchased during a home sale, sometimes paid for by the seller, but you can buy one at any time.

How claims work for each

The process is quite different.

Homeowners insurance claims:

1. Report the damage to your insurer.
2. An adjuster assesses the damage.
3. The insurer pays for covered repairs, minus your deductible, often as a check or direct payment to contractors.

Deductibles on insurance are usually set as a fixed amount or a percentage of the home's insured value.

Home warranty claims:

1. Request service from the warranty company when something breaks.
2. The company typically sends a contractor from its network.
3. You pay a set service call fee for the visit.
4. If the failure is covered, the company pays for the repair or replacement up to the plan's limits.

Examples to make it clear

• Your water heater leaks because it is old and the tank rusted through. The repair or replacement of the water heater may be covered by a home warranty. Some resulting water damage to floors or walls might fall under insurance, depending on your policy.
• A tree falls on your roof during a storm. This is a homeowners insurance claim.
• Your AC compressor stops working after years of use. This is a home warranty situation.
• A kitchen fire damages your range and cabinets. This is a homeowners insurance claim.

Do you need both?

Many homeowners benefit from both, because they fill different roles. Insurance protects against large, sudden losses and is usually required. A home warranty can help with the steady stream of system and appliance breakdowns that insurance does not touch.

Whether a home warranty makes sense depends on the age of your systems and appliances, your budget for repairs and how much you value having a set process when something breaks. Our home warranty overview explains the basics in more detail.

How Warranty Wizards can help

We help homeowners compare home warranty plans from independent third-party providers and explain what each plan covers, and what it excludes, before you buy. We do not sell homeowners insurance. You can request a free quote at /get-a-quote/.