Do You Need a Home Warranty or Home Insurance?

Owning a home is one of the best ways to build personal wealth over time. When you’re putting money toward a mortgage, you’re building equity. When you’re paying rent, you’re not building an investment because you don’t get the money back and don’t own any part of the home. Homeownership delivers some perks, but it can also get pretty pricey. To help you avoid unexpected expenses as you manage your mortgage payments, you might consider home warranty coverage.

Do I need a home warranty? It’s a question worth considering. On the surface, a home warranty can look like an excellent, affordable way to buy yourself peace of mind. But it’s not always worth it, especially when you consider the protection your homeowners insurance policy already provides.

To help you compare a home warranty vs. homeowners insurance and to decide if you need one, the other or both, we’ve built this quick and easy guide.

What is a home warranty?

A home warranty is a lot like a homeowners insurance policy. You buy this protection to pay for unexpected expenses after a disaster. With home insurance, that disaster might be something like a fire or theft. With a home warranty, the disaster is a major appliance or system breaking down.

Your home warranty pays to repair or replace covered appliances and systems if they break as a result of normal wear-and-tear. While your home insurance coverage can pay to repair or replace appliances after a covered peril, it doesn’t protect you against normal wear-and-tear breakdowns. Here, you need a home warranty.

Generally, you buy your home warranty in year-long increments. The protection costs between a few hundred and a thousand dollars.

When the warranty is in place and any appliance or system named in your warranty has an issue, you call your home warranty company. They send out a technician from the network to assess the issue, then (assuming your issue is covered by your warranty) pay for the cost to repair or replace the item.

What does a home warranty cover?

You can get a home warranty to cover a specific appliance, all of your appliances or your appliances and your home’s major components like your HVAC and electrical systems. Depending on the home warranty you choose, you can get protection for your:

  • Dishwasher
  • Electrical system
  • Furnace
  • Garbage disposal
  • HVAC system
  • Oven
  • Plumbing
  • Refrigerator
  • Swimming pool
  • Washer and dryer
  • Water heater

That broad-reaching coverage is appealing to homeowners, especially new homeowners who are concerned about getting hit with a big one-time expense as they manage new expenses like a mortgage and HOA. But home warranties come with some downsides.

Home warranty coverage is only valid if the appliance or system that breaks has been properly maintained. If you just bought the house, proving that the previous owner performed proper maintenance can be tricky (or even impossible). Additionally, there are some other pros and cons to consider.

Home warranty pros Home warranty cons
Generally affordable, especially compared against the cost of buying a new appliance You pay a service fee (usually between $50 and $125) each time someone needs to come assess a broken appliance or system
Less hassle because the home warranty company finds a contractor to perform repairs or install a replacement for you Less control because the home warranty company finds a contractor to perform repairs or install a replacement for you
You can avoid large, unexpected expenses to repair or replace appliances or systems You need proof of proper maintenance
Peace of mind Home warranties have per-repair and per-year limits on payout

Your home warranty company decides whether the broken appliance or system needs to be repaired or replaced. Even if you’re angling for a new oven, they might decide a repair is the best course of action. This can be nice for people who don’t want to have to research their options, but it also means you don’t get a say in the process — or the appliance you have to look at and use over the years.

What is homeowners insurance?

While homeowners insurance doesn’t protect you against wear-and-tear damage, if you’re worried about unexpected expenses pertaining to your home, it’s a must-have. Your home insurance policy can pay to repair or replace not just your appliances and systems, but also the structure of your home and your personal belongings after a covered peril. To help you find the right policy to protect your home, we rounded up the best homeowners insurance companies.

What is the difference between a home warranty and homeowners insurance?

When you’re considering home warranty vs. home insurance, remember that a home warranty only covers normal wear-and-tear. For protection against perils like fire, windstorms, smoke, theft and vandalism, you need home insurance.

Additionally, a home warranty only covers the appliances and systems explicitly listed in your warranty. Home insurance offers broader coverage for the structure of your house, other structures on your property, your personal belongings and even your liability. As with all types of insurance, your policy comes with limits on individual items and claims checks in general. Still, though, home insurance is going to offer you much broader-form, higher-dollar protection than a home warranty.

How to choose between insurance and a warranty

Ultimately, unless you own your home outright and could comfortably afford to rebuild it and replace everything you store in it, homeowners insurance is non-negotiable. You need this type of insurance policy to protect yourself and what’s probably one of your biggest investments: your house.

A home warranty may or may not serve you. It’s worth looking into pricing from a few home warranty companies to figure out what home warranty coverage would cost you based on where you live and the appliances and systems you want to protect. Then, read the fine print to figure out what would be required for your warranty to pay for repairs or replacements. If you’d need maintenance records you can’t provide, you’re better off skipping this coverage.

That doesn’t mean you have to leave yourself exposed to a painful one-time expense, though. If you ultimately decide a home warranty isn’t for you, consider putting the money you would have paid for this coverage into a separate savings account. Saving a few hundred bucks each year can make it much easier to replace your dishwasher without feeling the pinch.

The bottom line

If you’re stressed about what an appliance breakdown would do to your savings, look into home warranties and what you’d pay annually to cover the appliances and systems that most concern you. But don’t forget the potential drawbacks. You’d still need to pay service fees each time you need to call on your home warranty, plus your home warranty company will likely demand clear proof of proper maintenance.

To skip the hassle while still protecting yourself from the unexpected, make sure you have homeowners insurance and consider setting aside some money each year to cover appliance and system repairs and replacements.

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