Home Warranty vs. Home Insurance: What’s the Difference?

By Jessica Wimmer | November 2, 2023

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Home insurance and home warranties are two products that provide homeowners with a sense of security. However, these terms are often mistakenly used interchangeably, causing confusion among homeowners as they research home insurance and home warranty providers.

While both types of coverage offer protection, there are important distinctions between the two. In this article, we will explore the differences between a home warranty and home insurance, including what they cover, what they cost, and whether or not you need them.


 

What Is a Home Warranty?

A home warranty is a service contract that covers the repair or replacement of major systems and appliances in your home due to normal wear and tear. It is often purchased by homeowners to protect them against unexpected repair costs. Home warranties are typically offered by third-party companies and can be purchased at any time, regardless of the age of your home or its systems.


 

What Does a Home Warranty Cover?

A home warranty covers the repair or replacement of major appliances and home systems due to normal wear and tear. This can include items such as your air conditioning and heating system (HVAC system), plumbing system, electrical system, water heater, refrigerator, oven, washer, dryer, built-in microwave, and dishwasher. The specifics of your home warranty coverage will depend on the company you choose and the plan you select.

When you purchase a home warranty, you can usually choose from a few different plans. Some companies offer either systems or appliance coverage, while others provide comprehensive coverage across both categories. In addition, most companies offer optional add-ons for items such as electronics, roof leaks, septic systems, swimming pools, and well pumps.

Home warranties come with some exclusions and limitations. For example, most home warranties will not cover damage caused by natural disasters, acts of vandalism, or accidents. In addition, some plans may cap coverage for certain items or categories.


 

How Much Does a Home Warranty Cost?

Like home warranty coverage, the cost of a home warranty will vary from one plan or company to another. On average, basic plans cost from $400 to $600 per year, while premium plans cost $450–$900 per year. Most companies offer a choice between annual or monthly premium payments with a discount for those who pay annually.

Below are the prices we got when we pulled quotes for American Home Shield, Liberty Home Guard, and Select Home Warranty for a single-family home in Raleigh, North Carolina:

Provider

Monthly Premiums

American Home Shield

$17.49–$27.49 for ShieldSilver

$37.49–$47.49 for ShieldGold

$67.49–$77.49 for ShieldPlatinum

Liberty Home Guard

$49.99 for Appliance Guard

$54.99 for Systems Guard

$59.99 for Total Home Guard

Select Home Warranty

$44.42 for Bronze Care

$44.42 for Gold Care

$44.42 for Platinum Care

In addition to your home warranty premiums, you must pay a service call fee each time you file a claim or request service. This fee, which varies by company, should be listed in your service contract. Most companies charge a service fee in the range of $60–$125. One of our top picks, American Home Shield, lets customers choose their own service fee from two options. A higher service fee translates into lower monthly premiums.


 

Do I Need a Home Warranty?

While a home warranty can provide peace of mind and protect against unexpected repair costs, it may not be necessary for everyone. For example, if you have newer systems and appliances that are still covered by manufacturer’s warranties, a home warranty may not be necessary. Likewise, if you already have a significant amount of savings set aside for emergencies, a home warranty may not be the best use of your money.

A home warranty can be a good option for homeowners who want to protect themselves against unexpected repair costs—especially those who have older systems and appliances. Investing in a home warranty also makes sense for first-time homebuyers who may not be familiar with the age and condition of key items in their home and are not equipped for DIY repairs.

Ultimately the decision of whether or not to purchase a home warranty plan will depend on your individual circumstances and priorities. It’s important to carefully weigh the cost, coverage, and potential benefits of a home warranty before deciding.


 

What Is Home Insurance?

Home insurance is a type of insurance policy that provides financial protection for your home and personal belongings in the event of theft, natural disasters, or other covered perils. It is typically required by mortgage lenders and covers the physical structure of your home and the personal property inside it. Home insurance is designed to protect homeowners against financial loss and provide peace of mind.


 

What Does Home Insurance Cover?

Homeowners insurance covers a range of events, known as perils, that can cause damage to your home or personal property. Some of the most common covered perils include fire, theft, vandalism, hail, and water damage from burst pipes. Home insurance can also provide personal liability coverage if someone is injured on your property and you are held responsible. 

In addition to home systems, appliances, and personal belongings, your homeowners policy covers structural damage and certain types of accidental damage. If you are temporarily displaced until home repairs are complete, your insurance company will help cover your additional living expenses.

When you purchase home insurance coverage, you can choose from various options and limits. For example, you may be able to select a higher coverage limit for personal property or liability coverage, depending on your individual needs. You may also be able to purchase additional coverage for damage caused by earthquakes or floods, which are not typically covered under standard home insurance policies.

Carefully review your home insurance policy to understand what is and is not covered, as well as any exclusions or limitations that apply. For example, some policies may have coverage limits for certain types of personal property or may exclude some perils.


 

How Much Does Home Insurance Cost?

The cost of home insurance depends on factors including your home’s age and condition, its location, the coverage options you select, and your deductible.

On average, homeowners can expect to pay about $100 per month or $1,200 per year for home insurance. Progressive cites a 12-month average of $999 for low-cost states, $1,260 for medium-cost states, and $1,655 for high-cost states. The Insurance Information Institute (III), meanwhile, cites a nationwide average of $1,272 per year in 2019, with state averages ranging from $727 in Oregon to $2,037 in Louisiana.

As with home warranties, your monthly or annual premium is not the only cost to consider. Your homeowners insurance policy will also have a deductible. This is the amount you must pay before your coverage kicks in—or the amount that will be deducted from any payout you receive from your insurance company. Generally, a higher deductible comes with lower premiums.


 

Do I Need Home Insurance?

Home insurance is required by most mortgage lenders to protect their investment in your home. However, even if home insurance is not required, it can provide significant protection and peace of mind.

When considering whether or not to purchase home insurance, consider your individual circumstances and priorities. Home insurance provides immense financial protection and may be particularly important for homeowners who have significant investments in their homes or personal property. In addition, home insurance can provide protection against liability claims, which can be particularly important for homeowners who frequently entertain guests or have children.


 

Our Recommendation

Both a home warranty and home insurance can be worthwhile investments for your home. Home warranties help cover repair and replacement costs for major home systems and appliances that break down due to normal wear and tear. Home insurance policies, meanwhile, provide financial protection for unexpected events, such as theft, natural disasters, or liability claims.

When considering home warranties, it’s important to choose a reputable provider and carefully review the cost and coverage of each plan. American Home Shield and Liberty Home Guard are two of the best home warranty companies we’ve reviewed. Both offer a range of coverage options and affordable prices to meet most homeowners’ needs. Before making your selection, gather and compare quotes from at least three different companies.

Similarly, when looking for a home insurance policy, shop around and get multiple quotes. By comparing the coverage and cost of each policy, you can find the right policy for your home and personal property.


 

Home Warranty vs. Home Insurance FAQ

What are the cons of a home warranty?

While home warranties can provide peace of mind and financial protection, there are some potential drawbacks. Here are some cons of a home warranty:Exclusions and limitationsLimited coverageMonthly or annual costsOverlapping coverageQuality of customer service

Does a home warranty save you money?

A home warranty can save you money in the long run. If a covered item breaks down, your home warranty company will cover the cost of repair or replacement up to the coverage limits of your plan. Though you will be responsible for a predetermined service call fee, your out-of-pocket costs will be lower than they would be without a home warranty.

What is home protection insurance?

Home protection insurance is not a commonly used term—perhaps because of its ambiguous nature. Depending on the context, home protection insurance may refer to either a home warranty or homeowners insurance. Understanding the difference between home insurance and home warranties will allow you to determine what is meant by the term based on the context.

How can I get the most out of my home warranty?

Follow these tips to get the most out of your home warranty:Read the contract carefully to ensure that you fully understand your coverage.Choose a plan that closely matches your needs and budget.Maintain your systems and appliances.Use reputable service providers assigned by your warranty company.File any home warranty claims promptly.Keep detailed records related to claims, service visits, and maintenance.Know your rights and responsibilities.Renew your warranty annually to avoid a coverage lapse.Share feedback with your home warranty provider.


 

How We Chose the Top Home Warranty Providers

Our team reviewed and researched dozens of home warranty providers, thoroughly analyzed sample agreements, and identified customer pain points based on analysis of customer reviews and interviews with industry experts.

During this process, we determined that the most critical aspects of a home warranty company include available service plans and add-ons, depth of coverage, plan cost, industry reputation, customer support infrastructure, and additional features. We also focused on the ability to choose your own contractor, upgrade your coverage package, transfer your plan to another owner, and cover roof leaks, high-end appliance brands, ceiling and exhaust fans, and faucets and fixtures.

Our research supported that plan coverage should carry the most weight, with customer support as the second-most important factor. Industry reputation, plan availability, and additional features were rated equally. We determined that price range, while worth considering, should not be the primary basis for choosing a home warranty provider for your home’s needs.