Home Warranty vs. Homeowners Insurance: What Each One Covers

Many homeowners assume their insurance will pay when the furnace dies or the dishwasher quits. It won't. Homeowners insurance and home warranties protect against completely different kinds of problems, and knowing the difference can save you from an unpleasant surprise.

Homeowners insurance: sudden damage

A standard homeowners policy (HO-3) covers damage from sudden, accidental events such as fire, windstorms, hail, lightning, theft, vandalism and a burst pipe. It also includes personal liability if someone is injured on your property. It does not cover wear and tear, mechanical breakdown, poor maintenance, or, in most policies, flood and earthquake damage, which need separate coverage.

If your lender requires it, you must carry homeowners insurance; typical annual premiums vary enormously by state and risk, from under $1,000 to several thousand dollars.

Home warranty: breakdowns from normal use

A home warranty is a service contract that pays to repair or replace covered systems and appliances when they fail from normal use: HVAC, water heaters, plumbing, electrical, and appliances like refrigerators, ovens, washers and dryers. Plans typically cost $500 to $900 a year, plus a service fee of $75 to $150 each time a technician comes out.

Side by side

Is a home warranty worth it?

It can be if your major systems and appliances are older and you'd struggle to cover a sudden $3,000 repair. It's often less valuable for newer homes still under manufacturer warranties, or if you have a healthy emergency fund. Read the contract carefully: look for coverage caps per item, exclusions for "improper maintenance" or "pre-existing conditions," and whether you can choose your own technician.

Getting the most from either

• Keep maintenance records and receipts. Both insurers and warranty companies may ask for them.
• Photograph your home and belongings each year for insurance claims.
• Review your policy's deductible and consider raising it to lower the premium if you have savings.
• Ask your insurer about water backup and service line coverage, which are inexpensive add-ons.

For major systems, preventive care is the cheapest protection: see our guides to HVAC systems and roof replacement.

Prices are typical U.S. ranges and vary by region, home and contractor. Always get several local quotes and follow local building codes; hire a licensed professional for electrical, gas and structural work.