Buying a house or condo comes with tons of paperwork and countless details, and sorting through everything takes considerable time and effort on the owner’s part.
When deciding on how to protect a home and the personal items within it, one of the most important details is understanding the difference between home insurance and home warranties.
Both home insurance and home warranties “cover” aspects of the home and there is some overlap between the two products, so it’s easy to get them confused.
However, warranties and insurance offer different protections to the homeowner and those protections will only cover damages in some instances. Therefore, having a firm understanding of the benefits and limitations of each product, as well as understanding is a home warranty worth it, is vital to making an informed decision.
We’ll go step-by-step through the finer points of home insurance and home warranties, comparing them along the way, so homeowners can make the right decision on what will adequately protect their assets.
Home insurance and home warranty explained
Home Insurance vs Home warranty: what’s the difference?
Home Insurance vs Home warranty: what’s the difference?
Home insurance is used to protect the home and personal belongings from a set of perils named in an insurance policy, such as natural disasters and theft.
A home warranty, or housing warranty, is used to protect home appliances and home systems when they break down so that the appliance or system can be repaired or replaced using the home warranty instead of the owner shelling out the cost.
Every insurance policy and home warranty changes from company to company, so these definitions may not always hold true. Reading over the fine print is always important before signing up for insurance or a warranty.
In the table below, we’ll break down each general aspect of home insurance and home warranties and compare home warranty vs home insurance.
| Home Insurance | Home Warranty | |
| What does it cover? | dwelling, personal belongings, personal liability | home appliances, home systems |
| What does it cost? | U.S. average annual premium is $1,211 | U.S. average annual cost ranges from $300 to $600. |
| How does one submit a claim? | Over the phone or online | Over the phone or online |
| Does the lender require it? | Usually required to receive mortgages | Generally not required |
| Are there coverage limits? | Yes, in most cases | Yes, in most cases |
| Is there a deductible? | Yes, in most cases | Yes, in most cases |
| How can I make the cost of my coverage lower? | Raise deductibles, qualify for discounts | Raise deductibles, qualify for discounts |
As the above table shows, there are quite a few differences and similarities between home insurance and home warranties. Below we’ll expand on each section so homeowners will have a good idea of what to look for when shopping around for insurers and home warranty companies.
What does it cover?
Home insurance generally covers the structure of the main dwelling, personal belongings and personal liability, which comes into play if the policyholder gets into legal trouble. Some policies may also protect home appliances and systems from perils covered in the policy, but home insurance does not generally protect these assets from wear and tear.
Home warranties protect home appliances in the case of a breakdown or general wear and tear. So if an appliance like an oven or a home system like a heater is getting old and stops working, the home warranty would pay to fix or replace it while home insurance usually would not. Some home warranties can also be expanded to protect external structures like swimming pools.
What does it cost?
The cost of both home insurance and home warranties varies quite a bit depending on the specific product and which company is offering it. The more comprehensive the coverage and the higher the coverage limit, the more expensive the product will be for the owner.
How does one submit a claim?
Submitting a claim for both home insurance and home warranties can usually be handled over the phone. And now many companies offer online service for people to file claims via the company website. Many home warranties do require people to file a claim within a certain timeframe, usually 24 hours, in order to be eligible for coverage.
Does the lender require it?
Most mortgage lenders will require the homeowner to get home insurance before the lender will approve the mortgage. Home warranties are not commonly required by lenders.
Are there coverage limits?
Both home insurance policies and home warranties have coverage limits and the limit of each coverage should be clearly spelled out when signing up for a policy or warranty. Coverage limits can usually be increased—in both warranties and policies—for an additional cost.
Is there a deductible?
Both home insurance and warranties have deductibles that must be paid before the coverage kicks in and pays the rest. Deductibles in home warranties are usually much lower when compared to deductibles from home insurance policies.
How can I make the cost of my coverage lower?
There are a number of ways to lower the cost of coverage with both home insurance and home warranties. Usually, companies will have multiple tiers of insurance or warranties available to choose from so homeowners can decide on the amount of coverage that is right for them.
Discounts for things like online billing and good credit history are commonly offered by home insurers and warranty companies, and qualifying for these discounts helps to reduce the cost of a warranty or policy quite a bit. Make sure to check with the company to see what discounts are available.
Raising deductibles is another way to lower the cost of coverage. Generally speaking, the higher the deductible, the lower the cost of coverage.
Bottom line
While closely related, home insurance and home warranties offer protection in separate instances, and understanding the difference between the two is essential to getting the right coverage for a home.
Homeowners often ask whether or not a home warranty is worth it. Well it depends. The first thing to do is check the fine print in the home insurance policy. A close inspection of the policy will determine if there are any gaps in coverage that need to be filled. If the home insurance policy doesn’t offer adequate protection of home systems and appliances, then looking into a home warranty could be the right path.
