On Real Estate & More – February 2025

HOME WARRANTIES and home insurance are two distinct types of coverage that protect homeowners from financial loss, but they serve different purposes. While both offer valuable protection, understanding their differences is important.

A home warranty covers the repair or replacement of major home systems and appliances when they break down due to normal wear and tear. Homeowner’s insurance may cover a home’s structure and contents in the case of damage or theft.

Home warranties typically cover the mechanical components of your home’s systems and appliances. When a covered item fails, the warranty company sends a qualified technician to assess the problem and, depending on the specific circumstances, either repair or replace it. Most home warranty providers offer different levels of coverage. While coverage varies between providers, most home warranties typically include protection for the following items:

  • Air conditioning systems
  • Dishwashers
  • Electrical systems
  • Heating systems
  • Ovens and ranges
  • Plumbing systems
  • Water heaters

Many home warranty companies also offer optional add-ons for pools, spas, and additional appliances such as refrigerators and washer/dryers. In addition to the annual premium, home warranty holders typically pay a service fee or deductible each time they request a repair. These fees usually range from $75–$150 per service call.

Home insurance, also known as homeowner’s insurance, is a policy that protects your home and personal belongings from damage or loss due to covered hazards such as fire and smoke damage, theft, water damage from sudden and accidental discharge, windstorms, hail, etc. Unlike a home warranty, which focuses on internal systems and appliances, home insurance primarily covers the structure of your home and your personal property.

A standard home insurance policy typically includes several types of coverage:

  • Additional living expenses coverage: Helps with costs if you need to relocate temporarily due to covered damage
  • Dwelling coverage: Protects the structure of your home
  • Liability coverage: Provides protection if someone is injured on your property
  • Other structures coverage: Covers detached structures, such as a garage or shed
  • Personal property coverage: Protects your belongings inside the home

Standard home insurance policies typically don’t cover damage from floods or earthquakes. These require separate policies or endorsements.

Home warranties can be beneficial in certain situations, offering peace of mind and potential cost savings. Older homes often have aging systems and appliances more prone to breakdowns. A home warranty can help manage the costs of frequent repairs or replacements, making it an attractive option for owners of older properties.

Home warranties are frequently used in real estate transactions as a selling point. Sellers may offer one to attract buyers, while buyers might request one as part of the deal for added protection in their new home.

While home warranties are optional, home insurance is often required for homeowners. Most mortgage lenders require homeowners to maintain adequate home insurance coverage as a loan condition. This requirement protects the lender’s investment in the property. Home insurance provides protection against major disasters, such as fires, severe storms, or theft. These events can cause significant financial loss, making insurance an important safeguard for homeowners.

Many homeowners find that combining home warranties and home insurance provides the most comprehensive protection for their property. While maintaining both policies involves additional costs, it can potentially save money in the long run by reducing out-of-pocket expenses for both major disasters and routine breakdowns.

Understanding what these policies do and don’t cover can help you make informed decisions about your home protection strategy.

Home warranties typically don’t cover the following items:

  • Cosmetic defects
  • Damage from natural disasters
  • Improper maintenance
  • Pre-existing conditions
  • Structural issues

Ultimately, the decision to purchase a home warranty, rely solely on home insurance, or combine both types of coverage depends on your individual circumstances, including your home’s age, budget, and risk tolerance. By understanding the key differences and benefits of each, you can make an informed choice that best protects your home and provides peace of mind.