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Home warranty vs home insurance: Do I need both?

Fact-checked with HomeInsurance.com

If you own a home, condo or townhouse you are undoubtedly familiar with home insurance, which protects homeowners from damage caused by a list of known perils, such as fire or weather events. But what are home warranties? Are they different from homeowners insurance? Is it worth it to have a home warranty if you already have homeowners insurance? 

The answer is “yes, they are different” — and they may be a good idea for you, especially if you own an older home or major appliances. Let’s take a closer look at what a home warranty covers for you and whether it’s a good idea to have one in addition to your home insurance.

What is a home warranty?

A home warranty is a contract, usually lasting a year, that you sign with a home warranty company. In exchange for your regular payments, the company will cover the costs of repairs to your major appliances and home systems (such as electrical and plumbing) that are associated with wear and tear.

Because nothing in your home is designed to last forever, the need for repairs is a regular occurrence and maintenance consideration for homeowners. A home warranty can give you peace of mind that when one of your home appliances or systems fails, the cost of major repairs won’t come straight from your pocket.

Pros and cons of a home warranty

Home warranties aren’t a miracle solution though, and not everyone needs one. Homeowners with a new build, for example, will typically have manufacturer warranties on their new appliances, making a home warranty less useful.

Provides compensation for high repair costsWarranty costs $300-$600 a year (unless paid for by the seller in a purchase agreement)
Covers costs of repairs when they are more than the service feeMost service calls will require payment of a service fee of $50-$150
Covers repairs caused by normal wear and tear, which home insurance typically won’t coverCertain systems or appliances may not be covered
Warranty company will send pre-vetted techniciansRequires proper and regular maintenance of covered appliances and systems
Fees and service charges generally pay for themselves after one or two claims a yearDoesn’t cover damage from disasters, such as fire or flooding (your homeowners insurance should cover that)
Peace of mind knowing you’re protected from costly and unexpected repairsMust pay premiums even if you don’t have any service calls

May be a cap on number of service calls or the amount of each call

What’s covered by a home warranty?

Home warranty companies generally offer two options, which can be combined. One option includes repairs for major appliances, and the other includes repairs for home systems. You may also be able to add on optional coverage for less common items such as a pool or spa. 

Appliances covered 

These can include the following:

  • Refrigerator
  • oven/range/cooktop
  • Clothes washer and dryer
  • Dishwasher
  • Built-in microwave
  • Garage door opener
  • Trash compactor
  • Whirlpool bathtubs

Systems covered

Often includes:

  • Electrical system
  • plumbing/toilet
  • HVAC and ductwork
  • Ceiling and exhaust fans
  • Whole-house vacuum

Although these are general coverages, each company has its own list of items it will and won’t cover, as well as optional coverages. Most companies feature their coverage options with prices on their websites.

Where to get a home warranty   

If you are in the process of buying or selling a house, your real estate agent may recommend a company to consider for your home warranties, since this is a common time to purchase coverage. Otherwise, here are the most common ways to find a home warranty provider: 

Agencies that offer home warranties

  • Your realtor: real estate professionals have access to companies that offer policies specifically meant for home sellers. These policies are a value-added element to your home sale, which could incentivize a potential buyer to consider your house in the future.
  • Your contractor: if you are building a new home, ask your contractor for recommended home warranty companies. New build warranties may differ slightly in what they cover, based on the fact that many of the items in your new home will be covered by manufacturers warranties.
  • Your homeowners insurance company: Your home insurance provider can make sure your policy works with your home warranty to provide comprehensive coverage, ensuring repairs of all kinds are covered in just about any circumstance. Some insurers now offer home warranties as an endorsement to your insurance policy.
  • Your bank or mortgage company: you may be offered a free or low-cost home warranty contract when you sign on for a mortgage, depending on the lender’s network.

Do home warranties have deductibles?

Home warranty companies typically include a general service call fee that you pay each time you file a claim with the company. This essentially serves as your deductible, and can range between $50-$150. Some companies may offer you the chance to pick a specific deductible/service fee that works best for you, and in this case, your monthly costs may go down if you choose a higher amount.

What is home insurance?

The most common type of home insurance protects your home against damage or destruction from what are called “named perils.” These include things like fire, wind damage and other weather events, theft and vandalism, and more. Policies also include liability coverage, to protect against medical or legal fees in the event someone is injured at your home.

If you have a mortgage, your lender will require you to carry homeowners insurance. Regardless, homeowners insurance is highly recommended since there’s no guarantee what sort of devastating events you’ll have to deal with while owning your home.

Home warranty vs home insurance

While almost all homeowners have a homeowners insurance policy, home warranty contracts are not as common. When it comes to deciding between a home warranty versus home insurance, homeowners insurance is more strongly recommended as an essential form of protection. Home warranties, however, are more of a personal decision based on preference.

What’s the difference?

Home warranties and home insurance exist to provide financial protection for different purposes: warranties cover damage to home systems and appliances caused by the natural wear and tear, whereas home insurance covers your property and structures from damage caused by disasters such as fire and hurricanes. Insurance also features liability coverage, which is not part of a home warranty contract.

Cost-wise, you’re likely going to pay more for your homeowners insurance than you would for a warranty. The national average annual cost of homeowners insurance is $1,211, according to 2017 data from the Insurance Information Institute. In contrast, home warranty policies usually range between $300-$600 a year, or slightly more depending on optional coverages. 

Do you need a home warranty if you have homeowners insurance?

Are home warranties worth it? In some cases, a home warranty can be a complement to homeowners insurance and the combination of both can provide comprehensive coverage for most types of repairs within and outside the home. This is especially true if you have an older house, with appliances and systems that are likely to need frequent work or repairs to keep them running.

The Takeaway

  • Home warranties protect you from the cost of repairs to home appliances and systems.
  • Home insurance protects you from the cost of repairs to damaged structures, property, or personal belongings (not due to wear and tear).
  • Home insurance is typically required if you have a mortgage.
  • Home warranties are best for homeowners with older appliances or home systems that will likely need extra repairs to maintain working condition. 

A home warranty is a good idea if you’re not interested in paying for or conducting repairs yourself, or to avoid having to search for good technicians to make those repairs. Home warranties can take away much of your worry and leave you secure in the knowledge that trained technicians are only a phone call away.

Having said that, if you have newer appliances and systems, or if you enjoy engaging in home repairs yourself, a home warranty may be an unhelpful added expense. Ultimately, it’s best to take a close look at your own circumstances and unique needs of your home to make your decision on purchasing a home warranty.

Mary Van Keuren

After 30 years as a writer and editor in academia, Mary now writes full-time for the insurance and finance industries. Her work has appeared on Reviews.com, TheSimpleDollar.com and Bankrate.com, as well as other consumer-focused websites.

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