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

When purchasing a new home, homeowners have to make many important decisions about protecting their investment. Two common options for coverage are home warranties and home insurance. While these may sound similar on the surface, they actually provide very different protections.

Understanding the key differences between a home warranty and home insurance is crucial for homeowners to make the right choice for their needs and budget. This article will examine what each type of coverage includes, how much each costs, what risks are covered, and who would benefit most from each option. With this breakdown of home warranty vs home insurance, homeowners can better determine which is the right fit for their home.

What is a Home Warranty?

A home warranty is a service contract that covers repairs and replacements for a home’s major systems and appliances that break down due to normal wear and tear. Home warranties are designed to cover the cost of repairs and replacements for things like:

• Heating and air conditioning systems
• Water heaters
• Ovens and ranges
• Refrigerators
• Washers and dryers
• Plumbing systems
• Electrical systems
• Pool/spa equipment

Many home warranty companies offer different plan options that allow homeowners to customize the coverages for their particular home. Policies can range from covering just appliances to more comprehensive plans that include coverage for systems like plumbing, electrical, and HVAC.

When something covered by the home warranty breaks down, the homeowner pays a service fee per repair visit (usually $50-100) and the warranty company covers the remaining cost of the repair or replacement up to the coverage limits.

Home warranties can provide valuable protection against unexpected home repair costs. However, they have limitations on what is covered. Most home warranties exclude coverage for problems due to lack of maintenance, normal wear and tear for certain items, or pre-existing conditions.

What is Home Insurance?

Homeowners insurance provides property coverage against risks like fire, theft, windstorms, hail and other perils. It covers both damage to the physical structure of the home as well as personal possessions inside.

Standard homeowners insurance policies include these main types of coverage:

• Dwelling coverage – pays to repair or rebuild the home if damaged
• Other structures – covers structures like garages, sheds, or fences
• Personal property – pays to replace stolen or damaged personal belongings
• Loss of use – covers hotel or rental costs if home is uninhabitable during repairs
• Liability – protects against lawsuits for bodily injury or property damage
• Medical payments – pays medical bills for people injured on the insured property

In addition to these standard coverages, homeowners can add endorsements like flood insurance, earthquake insurance, water backup coverage, and more.

Unlike a home warranty, homeowners insurance covers sudden and accidental damages from perils like fires and storms. It does not cover normal wear and tear or maintenance issues in the home. Deductibles usually apply, often $500-$2,500.

How Home Warranty is Different from Home Insurance

While home warranties and homeowners insurance both offer protections for the home, they actually work very differently. Here are some of the key differences:

• What’s covered – Home warranties cover repairs/replacements for appliances, systems and equipment from normal wear and tear. Home insurance covers damage from sudden events like fires, storms, theft, etc.
• Costs – Homeowners pay a monthly or annual fee for a home warranty contract. Home insurance policies charge an annual premium based on factors like the home value, location, and claims history.
• Repairs process – With a home warranty, the contract provider dispatches repair technicians. For home insurance, the homeowner handles arranging repairs.
• Pre-inspection – Home warranties may require an inspection of the major systems before coverage begins. Home insurance usually doesn’t require inspections beforehand.
• Exclusions – Home warranties exclude coverage for lack of maintenance and pre-existing conditions. Home insurance excludes normal wear and tear breakdowns.
• Caps on coverage – Home warranties limit the amount they will pay for repairs/replacement, often $500-$3000. Home insurance policies have higher limits, often $200,000-$500,000.

How Much Does Home Warranty and Home Insurance Cost?

Home warranties and home insurance have very different pricing models. Here’s an overview:

Home Warranty Pricing

• Costs range: $300 – $600 per year
• Based on factors like: home type, size, age, number of systems/appliances covered
• Service fees per visit: $50 – $125

Home Insurance Pricing

• Costs range: $600 – $2000 per year
• Based on factors like: home value, location, claims history, amount of coverage
• Deductibles: $500 – $2500 per claim

In general, home warranties cost less overall than home insurance on an annual basis. However, homeowners pay out-of-pocket service fees for each repair with a home warranty. With insurance, the deductible is a one-time fee per claim.

What Home Warranty Covers

Home warranty coverage varies by provider but often includes:

• Appliances: Oven, range, cooktop, refrigerator, washer, dryer, dishwasher, garbage disposal
• Systems: HVAC, electrical, plumbing, water heater
• Other Equipment: Ceiling fans, garage door openers

Add-on options may include coverage for pools, spas, well pumps, septic systems. Most home warranty companies limit the age of appliances covered, often around 5-10 years old. Total coverage limits per repair may range from $500-$3000.

What Home Insurance Covers

Standard homeowners insurance covers risks like:

• Fire or smoke damage
• Lightning strikes
• Wind and hail damage
• Theft
• Vandalism
• Burst pipes
• Electrical surges
• Fallen trees/limbs
• Weight of ice or snow
• Living expenses if home is unlivable

Additional endorsements add protection for other perils like floods, earthquakes, water backups, etc. Personal property coverage often includes a minimum of 50% of dwelling coverage. Total dwelling and personal property limits often range from $200,000-$500,000.

For Whom Home Warranty is Best

A home warranty can provide the most value for:

• New homeowners – protects new appliances & systems still under manufacturer’s warranty
• Buyers of older homes – covers maintenance for aging systems/appliances
• Budget-focused homeowners – predictable costs help them plan expenses
• Busy homeowners – lets a service handle repairs/arrangements
• DIY avoiders – access to repair technicians is convenient
• Families with children/pets – protects items prone to wear and tear

Home warranties provide peace of mind against unexpected breakdowns of home systems and appliances. For homeowners who want to minimize household repairs, home warranties offer value.

For Whom Home Insurance is Best

Homeowners insurance provides the most benefit to:

• All homeowners – protects the home’s physical structure itself
• Homeowners in high-risk areas – covers damage from natural disasters
• High-value homes – larger dwellings and more possessions need higher limits
• Home-based business owners – protects equipment and liability risks
• Pet owners – covers dog bites and other liability claims
• Art and jewelry collectors – covers high-value personal possessions
• Families with children – protects against liability claims

Nearly all homeowners need quality home insurance protection against catastrophic losses. Home insurance safeguards the substantial investment made in the home itself.

Best Home Warranty Companies

1. AFC Home Warranty

• Plans: 4 plans (Platinum, Gold, Silver, Bronze)
• Pricing: Starts at $328/year with fees between $75-$125
• Reputation: 4.1/5 rating on Trustpilot; positive reviews for timely service
• Perks: Choose from over 20,000 contractors, 24/7 emergency dispatch

AFC Home Warranty provides comprehensive plans and high-quality customer service. It offers emergency repairs 24/7 with fast response times. AFC has been in business for over 15 years.

2. Liberty Home Guard

• Plans: 3 plans (ShieldComplete, ShieldEssential, ShieldBasic)
• Pricing: $385-$590/year with fees between $65-$125
• Reputation: 4.1/5 stars on Google reviews; praise for add-on options
• Perks: Coverage for over 20 home systems, plus 24 add-on options

Liberty Home Guard is known for robust coverage options and helpful customer service representatives. Customers can also take advantage of discounts on moving services and more through Liberty’s partner network.

3. American Home Shield

• Plans: 3 plans (Platinum, Gold, Silver)
• Pricing: $300-$500/year with fees between $100-$125
• Reputation: 3.3/5 stars on ConsumerAffairs; positive for broad coverage
• Perks: Code upgrades, rust/corrosion coverage, over 12 optional add-ons

American Home Shield provides affordable plans nationwide and decent customer satisfaction ratings. It offers electronics protection plans and does not limit coverage based on home age.

4. Cinch Home Services

• Plans: 3 plans (Complete Home, Essential Home, Basic Home)
• Pricing: Starts at $444/year with fees from $100-$150
• Reputation: 4/5 stars on HomeAdvisor; praised for fast response times
• Perks: Strong customer service, no pre-inspection requirements

Cinch Home Services offers fast repairs within 24 hours of a service request and quality customer service. Technicians are background checked and professionally trained.

5. ARW Home Warranty

• Plans: 3 plans (Appliance, Systems, Complete)
• Pricing: $579/year with $55 service fee
• Reputation: A+ BBB accreditation; high marks for transparent practices
• Perks: Choose your own contractors from 25,000+ options

ARW Home Warranty is known for fair pricing and operating with integrity. It provides coverage in all 50 states and lets you use local contractors.

Best Home Insurance Companies

1. Liberty Mutual

• Ratings: A rating from A.M. Best (Excellent)
• Price: Competitive rates and up to 15% multi-policy discount
• Features: Replacement cost coverage, 24/7 claims service

Liberty Mutual has customized coverage options and strong financial ratings. Offers 24/7 claims service and ability to bundle policies.

2. Allstate

• Ratings: A+ rating from A.M. Best (Superior)
• Price: Average rates with available discounts up to 30%
• Features: Extensive coverage add-ons, Enhanced Home Replacement Cost up to 200%

Allstate provides customized insurance policies and routinely earns top marks for financial strength. Discounts can apply for bundling policies.

3. State Farm

• Ratings: A++ rating from A.M. Best (Superior)
• Price: Competitive average rates and new home discount
• Features: Easy online quotes, 18 optional enhancements

State Farm has an easy online quote process and stellar financial ratings. It offers a 16% new home discount and loyalty discounts.

4. American Family

• Ratings: A rating from A.M. Best
• Price: Bundling discounts available up to 15%
• Features: Mobile app, online comparison tool, identity protection

American Family provides digital resources and bundling discounts for customers. It offers identity theft monitoring and restoration services.

5. Farmers

• Ratings: A rating from A.M. Best
• Price: Standard, enhanced, premiere tiered packages
• Features: Identity theft recovery services, equipment breakdown coverage

Farmers allows extensive customization of insurance policies through 3 package levels to meet specific needs. Also features rideshare coverage.