Home warranty vs. home insurance: Which one do I need?

Do you need a home warranty if you have home insurance? Both offer valuable protection, but they cover different things. Home insurance protects your home against major disasters, while a home warranty covers repairs or replacements for systems and appliances that break from daily use.

Let’s explore the key differences between a home warranty and home insurance so you can decide if you need just one or both.

Is a home warranty and home insurance the same?

No, home warranties and homeowners insurance aren’t the same.

“Homeowners insurance repairs or replaces property due to damage from a covered peril like weather-related disasters, crime-related incidents and accidents,” said Amy Adams, a real estate curriculum specialist at The CE Shop, a California real estate continuing education company. In other words, it protects you from financial loss if your home or personal belongings get damaged from fires, storms, theft and vandalism.

Stuart Winchester, the CEO of Marble, a digital wallet that helps users compare, shop and store their insurance policies, explains that mortgage lenders require home insurance because “it covers the inside and outside of your home, structure on your property and injuries or damages that occur on your property. These all impact your home’s value, and in turn, the value of the asset that is guaranteeing the home loan.”

In contrast, a home warranty is optional. It is a service contract that helps cover the costs of repairing or replacing major home appliances and systems, like your air conditioner, refrigerator or plumbing, when they fail from normal use. “Home warranties can help cover some coverage gaps that home insurance won’t provide,” said Seamus Nally, the CEO of TurboTenant, a rental property management software company.

Home warranty plans vary from company to company. Read the service contract carefully before signing it to get the most out of your warranty. “Depending on the one you choose, you may only be covered for repairs and replacements up to a certain dollar amount,” Nally adds.

Home insurance vs. home warranty coverage

Here’s a quick overview of the key differences between home insurance and a home warranty.

Home insurance

Home warranty

What does a home warranty cover?

A complete home warranty typically covers the repair or replacement of major home systems and appliances that fail because of normal wear and tear. Covered items usually include:

Some home warranty plans provide optional coverage for garbage disposals, built-in microwaves, pools, spas, septic systems and other items. “All home warranty plans are different, starting with a base plan that can be added to,” Adams said, so read the fine print. Ensure your home warranty company will cover the essentials and extras you may need.

What does a home warranty not cover?

Home warranties cover most of your critical home systems and appliances but do have limitations, including:

A standard plan may not include roof leak coverage. Still, some warranty providers, like Select Home Warranty, include this coverage if you’re worried about water getting inside and damaging your home.

What does home insurance cover?

Home insurance companies offer financial protection when covered perils damage your home’s structure or personal belongings. After you file a claim, your home insurance will pay to rebuild or repair your home destroyed by events like:

If someone gets injured on your property, liability coverage helps pay their medical expenses or legal fees if they sue. Most policies include added living expenses coverage, which pays for temporary housing and meals if a covered loss forces you out of your home. You can choose coverage at different levels (and costs).

What does home insurance not cover?

Like a home warranty, home insurance also has exclusions. Typical are:

Do I need a home warranty if I have home insurance?

Buying a home warranty as a homeowner is not mandatory, but it could be a wise investment if you want peace of mind against unexpected repair or replacement costs.

Jay Garvens, a business development manager at Churchill Mortgage, a mortgage lender, shares two cases where a home warranty would and wouldn’t make sense.

Suppose you just agreed to buy an older home. Your agent suggests buying a home warranty because you don’t know the history of the systems and appliances in the house. This can be smart because Garvens said. “Six months later, the dishwasher [could] fail. In this case, you could get a brand-new appliance through your warranty” without paying the full price.

However, sometimes people buy home warranties out of fear. They may “hear a neighbor complain that their furnace went out, costing them thousands to replace it,” Garvens said. In this scenario, they might research warranty programs and buy one “to be safe.” But if this happened, he said, “You could simply call an HVAC professional and have yours serviced and inspected [regularly] for pennies on the dollar.”

What are some of the best home warranty companies?

Our research shows that Select Home Warranty stands out as the top choice for its reasonably priced plans covering home systems and appliances — regardless of age. This comprehensive coverage gives you peace of mind without breaking the bank.

American Residential Warranty is another excellent option, particularly for those who anticipate making frequent claims. It charges $55 for service calls, while most home warranties charge anywhere from $75 to $150. This can lead to significant savings over time.

Lastly, we love that Home Warranty Inc. lets homeowners work with their own contractors. This flexibility is valuable if you have a trusted contractor you’d like to continue working with while enjoying the benefits of a home warranty.

When shopping for a home warranty, research each company’s coverage limits, customer reviews, service call fees and policies.

Bottom line

Deciding between a home warranty and home insurance doesn’t have to be an either-or situation. Each offers unique protection. You can get comprehensive coverage by having both, but handy homeowners or those with newer systems and appliances may not find home warranties worth it.

If you’re considering a home warranty company, research a few and read the fine print to see what’s covered and for how much. Service fees may vary by specific systems and appliances. Ultimately, buying a home warranty on top of your homeowner’s insurance depends on your needs, budget and risk tolerance.

Frequently asked questions (FAQs)