Home Warranty Vs. Home Insurance: Key Differences

Buying a house is a significant investment. With all the money you put toward a down payment, closing costs and building equity, it’s critical to protect your home. Two substantial ways you can protect yourself and your property are home warranties and home insurance.

While similar, home warranties and home insurance have several key differences that homeowners should consider. Let’s compare a home warranty with home insurance and see when each is most beneficial for homeowners.

What Is A Home Warranty Vs. Home Insurance?

A home warranty is a policy that offers homeowners financial protection for certain home systems or household appliances if they need repair or replacement due to normal wear and tear. Home insurance, or homeowners insurance, is a protection policy that covers damage or loss to your home from circumstances that are out of the ordinary, such as natural disasters or theft.

Home warranties and homeowners insurance both offer financial security for a fee. However, the two types of coverage differ in several ways. For example, mortgage lenders typically require homeowners insurance, while a home warranty is optional. However, this is only the tip of the iceberg in how these two kinds of policies differ.

Key Differences Between A Home Warranty And Home Insurance

Curious about the ways that home warranties and homeowners insurance contrast? Here’s a breakdown of their key differences.

• Coverage: Home warranty policies may cover heating and cooling systems, kitchen appliances, your washer and dryer, other items or some combination of all these. Homeowners insurance usually covers major repairs to structural damage on your home from a fire, storm or burglary.
• Cost: On average, a home warranty policy costs $300 – $600 a year. This doesn’t include individual service fees, which can range from $60 – $100. The annual cost of homeowners insurance is more expensive, according to Forbes, coming in at $1,854 on average.
• Lender requirements: Most lenders require borrowers to purchase homeowners insurance before issuing them a loan in order to protect their own investment. Home warranties, on the other hand, are not mandatory for homeowners.
• Financing: While homeowners will pay for their homeowners insurance coverage, a home seller might offer to purchase a home warranty to protect the buyer from some or all of the costs that would result from a potential repair to older appliances or home systems.

Home Warranty Coverage Vs. Home Insurance Coverage

Coverage is one of the major factors setting home warranties and homeowners insurance apart. To decide whether you need either or both of these plans, it’s best to know what each covers. All plans will vary depending on the company you’re working with, the exact policy you choose and any add-ons you purchase.

Items typically covered under a home warranty policy:

• HVAC system
• Electrical system
• Refrigerator
• Built-in microwave
• Dishwasher

Losses or damages traditionally covered by a homeowners insurance policy:

• Structural damage to your home due to some natural disasters, fires and theft
• Damage to other structures on your property (pool, shed, fence, etc.)
• Liabilities (injuries suffered on your property)

Homeowners insurance may cover some items that would also fall under a home warranty policy, but those items are only protected by home insurance if they’re damaged or lost due to a natural disaster. For example, personal property coverage – the feature of homeowners insurance that provides coverage for your personal belongings – could protect your appliances much like a home warranty. To find out what’s covered, contact your home warranty or insurance company and request a detailed list.

Similarities Between Home Warranties And Home Insurance

In addition to the potential overlaps between home warranties and home insurance, the two versions of home protection have some other commonalities. First, both are customizable, meaning you can choose a plan that fits your needs and select add-ons to further personalize your coverage. Your policy options will also vary depending on the company you’re working with for both a home warranty and homeowners insurance.

Finally, you should go about purchasing a policy the same way for a home warranty that you would for homeowners insurance. Before selecting a plan, research the best home warranty companies or home insurance companies to find a provider that offers the best coverage for you at the best price. Be sure to read the fine print of different policies and ask your warranty or insurance company any questions you have about specific plans as well as costs and deductibles.

When Should You Get A Home Warranty Vs. Home Insurance?

Trying to decide whether you need a home warranty or home insurance? There are certain situations where buying homeowners insurance or a home warranty is wiser.

A home warranty may be more beneficial if you’re buying a house with older household appliances or home systems not covered by a manufacturer’s warranty. On the flip side, if your appliances or systems are new, you may decide the upfront cost of a warranty isn’t necessary. A home warranty is helpful, however, if you don’t have an existing relationship with a trusted contractor or technician. That’s because the home warranty company will connect you with one once you file a claim.

If homeowners insurance isn’t required by your lender, it’s still wise to protect your home and personal property, especially if you’re a first-time home buyer. If you aren’t prepared to front the cash for repairs to your home or damage to personal belongings, homeowners insurance can significantly ease the financial burden.

The Bottom Line

While both home warranties and homeowners insurance can protect you from financial loss, each is unique in the items it covers, the situations in which it’s usable, and whether a lender requires it. Whether you’re a homeowner or a hopeful home buyer, it’s important to understand the general and provider-specific characteristics of a home warranty versus a home insurance policy before purchasing either.

If you’re ready to buy a home, make sure you’re as prepared as possible by starting the approval process with Rocket Mortgage®.