What is a home warranty?
Simply put, it’s a home protection plan for the essential items that keep your home running—like your HVAC, water heater, fridge and more. When one of these appliances or systems breaks down because of normal wear and tear, a home warranty covers its repair or replacement.
How does a home warranty work?
The first step is securing the right warranty for you and your budget. You can typically choose coverage for just appliances, just systems or a combination of both, so choose the option that makes sense for your needs.
Then, if something does break down, simply contact your provider to file a claim. The home warranty company will send a technician to your home to assess the issue and either repair or replace the item.
Finally, it’s important to remember that there is generally a service fee (even if the repair or replacement is covered). This can range from $75–$125, depending on your provider and the specifics of your coverage.
What does a home warranty cover?
Your home’s appliances and systems won’t last forever, but a home warranty helps cover items you use the most. Let’s look at what’s usually covered—and what isn’t.
- Appliances: Refrigerators, ovens, dishwashers, washers and dryers.
- Systems: HVAC, plumbing, electrical.
- Exclusions: Pre-existing conditions, improper maintenance, neglect.
How much does a home warranty cost?
A home warranty isn’t one-size-fits-all. Its cost depends on how much protection you want. On average, you’ll spend anywhere from $220 to $1,880 a year, with service call fees running between $75 and $125 per visit. The final price depends on things like your home’s location, its condition and, of course, how much coverage you need.
Your home’s appliances and systems won’t last forever, but a home warranty helps cover items you use the most.
What is home insurance?
Home insurance acts as a safety net for your home, covering damage to your house and belongings, as well as protecting you if someone gets hurt on your property. It’s not just a smart choice—it’s a must-have if you’ve got a mortgage. Lenders require a home insurance policy to protect you (and them) in case disaster strikes.
How does home insurance work?
Different policies cover different types of homes, but, in general, they all cover incidents like fires, windstorms and theft. That being said, a number of factors impact your coverage, including location, the value of your home and belongings, the size and condition of your home and the deductible—which is the amount you pay out of pocket before the insurance company begins paying.
For example, with a $2,000 deductible and a $20,000 covered loss, you pay $2,000 and the insurance company covers the remaining $18,000. So, while higher deductibles can lower premiums, they also increase out-of-pocket costs. Other factors that influence the total amount paid out by your insurance company include coverage limits and the specific damage covered by the policy.
PRO TIP
Boost your home’s defenses for greater savings. Installing a security system, storm shutters or impact-resistant roofing can lower premiums and add protection.
What does home insurance cover?
Before you sign your policy, it’s important to understand what your policy covers.
- Dwelling coverage: Protects the structure of your home from disasters like fire, windstorms and vandalism.
- Personal property: Covers your belongings if they are damaged or stolen due to covered events such as fire, theft or storms.
- Liability protection: Helps pay for legal fees if someone is injured on your property.
- Exclusions: Does not cover appliance breakdowns, wear and tear or neglect.
How much does home insurance cost?
While the average cost nationally is $1,400 per year, insurance prices can vary significantly depending on several factors, including:
- Home value and replacement cost: The cost to rebuild your home if it is damaged.
- Location and risk factors: Whether your home is in areas prone to floods, wildfires or other natural disasters.
- Deductible selection: Choosing a higher deductible can lower your premiums.
- Claims history and credit score: Your past claims and credit score can affect your insurance rates.
Home warranty vs. home insurance
| Coverage Type | Home Warranty | Home Insurance |
|---|---|---|
| Appliances and Systems | Covers repairs and replacements of appliances and systems (HVAC, water heater, refrigerator, etc.) | Does not cover appliances or systems |
| Structural Damage | Does not cover structural damage | Covers structural damage (fire, hail, theft, vandalism, etc.) |
| Personal Possessions | Does not cover personal possessions | May cover personal possessions |
| Liability | Does not provide liability coverage | Provides liability coverage for injuries on the property |
| Natural Disasters | May cover some natural disasters but often requires additional coverage | Covers natural disasters like fire, hail, lightning, tornado; additional coverage needed for floods and earthquakes |
| Deductibles | Typically covers full cost of repair or replacement, with a service call fee | Requires a deductible before coverage kicks in |
| Service Providers | Works with specific repair businesses | You can choose your own service providers |
Coverage differences
You can remember the differences in home protection coverage like this: a home warranty covers everyday appliances and systems like HVAC units, water heaters and fridges, while home insurance steps in for bigger disasters like fires, storms, theft and even liability if someone gets hurt on your property.
Cost differences
Given the nature of its coverage, a home warranty generally costs less per year. However, you will have to pay a service fee for each claim. Home insurance, in contrast, comes with a higher premium and a deductible when you file a claim.
Pro Tip
Save with annual payments. Some providers offer discounts if you pay for the year up front instead of opting for monthly installments.
When do you need both?
Whether you’re designing your dream home or reviving a charming fixer-upper, having both a home warranty and home insurance makes good sense. Owners of new homes get peace of mind with full protection on their investment, while owners of older homes safeguard against aging systems, worn-out appliances and unexpected disasters.
Pros and cons of home warranties & home insurance
Before you commit, make sure you understand all the advantages and disadvantages of home insurance and a home warranty.
Home warranty pros & cons
- Covers unexpected appliance and system breakdowns
- Saves money on unexpected repair costs
- Service fees apply per claim
- Not all repairs are covered (exclusions apply)
Home insurance pros & cons
- Covers home damage, personal belongings and liability
- Mortgage lenders require it for home loans
- Higher premiums than home warranties
- Deductibles must be met before coverage applies
