Home Warranty vs Homeowners Insurance: What's the Difference?
complete comparison of home warranties and homeowners insurance. Learn what each covers, how much they cost, which one you actually need, and whether it makes sense to have both.
Quick Answer
Homeowners insurance is required and covers catastrophic damage (fires, storms, theft). Home warranties are optional and cover system/appliance failures (HVAC, refrigerator, plumbing). Insurance costs $1,200-$3,000/year, warranties cost $400-$800/year. Most people need insurance only. Get a warranty if you have aging systems (10+ years old) or can't afford $3,000-$5,000 emergency repairs. For expensive single systems like heat pumps or solar panels, equipment breakdown coverage (insurance add-on at $25-75/year) is better than a warranty.
Homeowners insurance and home warranties are completely different products that people constantly confuse. One protects against disasters. The other protects against breakdowns. Understanding the difference can save you thousands in unnecessary coverage costs.
This guide breaks down exactly what each covers, how much they cost, which one you actually need, and the scenarios where having both makes sense. I'll also show you a third option - equipment breakdown coverage - that's often better and cheaper than home warranties.
HVAC Equipment Coverage
$300-600/year • Up to $5,000-20,000 coverage
Breakdown coverage, extended warranty, and repair protection.
Get Coverage Options →Homeowners Insurance vs Home Warranty: The Core Difference
Homeowners Insurance
Purpose: Protects against sudden, unexpected catastrophic events
Examples of what it covers:
- Fire destroys your home
- Hurricane damages your roof
- Burglar steals your belongings
- Tree falls on your house
- Pipe bursts and floods your basement
- Someone gets injured on your property
Required by mortgage lenders
Home Warranty
Purpose: Covers repair/replacement of systems and appliances that fail from normal use
Examples of what it covers:
- Air conditioner stops working
- Refrigerator motor burns out
- Water heater fails
- Dishwasher breaks down
- Furnace needs repair
- Garage door opener fails
Completely optional
The key difference: Insurance covers things that happen TO your home (external damage). Warranties cover things that break IN your home (internal failures).
Complete Comparison: Home Warranty vs Homeowners Insurance
| Feature | Homeowners Insurance | Home Warranty |
|---|---|---|
| Annual Cost | $1,200 - $3,000/year | $400 - $800/year |
| Per-Claim Fee | $500 - $2,500 deductible (once per claim) | $75 - $125 service call fee (every visit) |
| Required? | Yes (by mortgage lenders) | No (completely optional) |
| What It Covers | Catastrophic events: fires, storms, theft, liability | System/appliance breakdowns from normal use |
| Choose Contractor? | Yes - any licensed contractor | No - must use warranty network |
| Payout Method | Replacement cost or actual cash value | Repair when possible, cheapest replacement |
| Coverage Limits | Full dwelling coverage (rebuild cost) | Caps per item ($1,500-$3,000 typical) |
| Claim Disputes | Regulated, objective assessment | Common, often look for exclusions |
| Pre-Existing Conditions | Covered (if insured when issue occurred) | Not covered - waiting period applies |
| Best For | Everyone (required) | Multiple aging appliances |
What Homeowners Insurance Covers (and Doesn't)
Standard homeowners insurance policies cover specific perils. Here's the breakdown:
Covered by Homeowners Insurance
- ✓Fire and smoke damage
House fire, electrical fire, kitchen fire
- ✓Wind and hail damage
Hurricane, tornado, windstorm damage
- ✓Theft and vandalism
Burglary, break-ins, property damage from vandals
- ✓Lightning strikes
Direct strike damage, power surge damage
- ✓Water damage (sudden)
Burst pipes, accidental discharge, ice dams
- ✓Falling objects
Tree falls on house, aircraft debris
- ✓Liability claims
Someone injured on your property, dog bite
NOT Covered by Homeowners Insurance
- ✗Floods
Need separate flood insurance
- ✗Earthquakes
Need separate earthquake insurance
- ✗Normal wear and tear
Aging appliances, old roof, worn carpet
- ✗Maintenance issues
Clogged gutters, unmaintained HVAC
- ✗Gradual damage
Slow leaks, mold, termites
- ✗Appliance failures
AC breaks, refrigerator dies, water heater fails
- ✗Intentional damage
Damage you caused on purpose
Important add-on: Equipment breakdown coverage is an endorsement you can add to homeowners insurance for $25-75/year. It covers sudden mechanical/electrical failures of HVAC, appliances, and systems - filling the gap between insurance and warranties.
What Home Warranties Cover (and Limitations)
Home warranties are service contracts that cover repair or replacement of home systems and appliances. Here's what to expect:
Typical Home Warranty Coverage
HVAC Systems
- Central air conditioning
- Furnaces and boilers
- Ductwork (sometimes)
- Thermostats
Plumbing
- Water heaters
- Toilets and faucets
- Garbage disposals
- Sump pumps (sometimes)
Appliances
- Refrigerators
- Dishwashers
- Ovens and ranges
- Washers and dryers
Electrical
- Electrical panels
- Ceiling fans
- Garage door openers
- Doorbells (sometimes)
Other Systems
- Built-in microwaves
- Vent fans
- Garage doors
- Intercoms (sometimes)
Home Warranty Limitations & Exclusions
- Pre-existing conditions: Anything broken before you bought the warranty isn't covered (30-90 day waiting period)
- Lack of maintenance: If you didn't maintain the item (change filters, annual service), claim is denied
- Coverage caps: Most items have $1,500-$3,000 limits. If repair costs more, you pay the difference
- Must use their contractors: Can't choose your own HVAC company or plumber
- Service call fees add up: $75-125 per visit. Multiple issues = multiple fees
- Depreciation: May only get a depreciated value payout, not full replacement cost
- Commonly excluded: Heat pumps (often), solar panels, hot tubs, septic systems, well pumps, and smart home equipment
Cost Comparison: Which Is More Expensive?
| Cost Type | Homeowners Insurance | Home Warranty |
|---|---|---|
| Annual Premium | $1,200 - $3,000 | $400 - $800 |
| Per-Incident Fee | $500 - $2,500 deductible (once) | $75 - $125 service call (each visit) |
| Example: 3 Service Calls/Year | Premium + deductible (if major claim) | $400-800 premium + $225-375 fees = $625-$1,175 |
| 5-Year Total (No Major Claims) | $6,000 - $15,000 | $2,000 - $4,000 + service fees |
Bottom line on cost: Home warranties are cheaper annually, but service call fees add up quickly. Homeowners insurance is more expensive but protects against much larger financial risks.
Do You Need Both? Decision Guide
You NEED Homeowners Insurance If:
- ✓You have a mortgage (lender requires it)
- ✓You own your home outright (still highly recommended)
- ✓You can't afford to rebuild your home out of pocket ($200,000-$500,000+)
- ✓You want liability protection (lawsuit coverage)
Verdict: Required for nearly everyone. Not optional.
A Home Warranty MIGHT Make Sense If:
- ○You have multiple aging appliances (10-15 years old)
- ○Your HVAC system is 10+ years old and out of warranty
- ○You can't afford a $3,000-$5,000 emergency repair
- ○You just bought a home and don't know the equipment condition
- ○You want convenience (don't want to find contractors yourself)
Verdict: Optional. Evaluate based on your specific situation.
Skip the Home Warranty If:
- ✗All your appliances/systems are under manufacturer warranty
- ✗You have a healthy emergency fund ($10,000+)
- ✗Your equipment is brand new (less than 5 years old)
- ✗You're handy and can fix minor issues yourself
- ✗You have trusted contractors you prefer to use
Verdict: Self-insure. Put $50/month in a "home repair" savings account instead.
The Better Alternative: Equipment Breakdown Coverage
For most homeowners, equipment breakdown coverage (an add-on to homeowners insurance) is better than a home warranty:
| Feature | Equipment Breakdown Coverage | Home Warranty |
|---|---|---|
| Annual Cost | $25 - $75 | $400 - $800 |
| Per-Claim Fee | Insurance deductible (once) | $75-125 per visit |
| Choose Contractor? | Yes - any licensed contractor | No - warranty network only |
| Covers Solar/Heat Pumps? | Usually yes | Usually no |
| Payout Method | Replacement value | Cheapest fix/depreciated value |
| Coverage Limits | $25,000 - $100,000+ | $1,500 - $3,000 per item |
| Best For | High-value single systems | Multiple aging appliances |
Example scenario: You have a $12,000 heat pump and $25,000 solar panel system.
Option 1 - Home Warranty: $600/year + $100 service call. Heat pumps/solar often not covered. Even if covered, $3,000 cap means you pay $9,000+ out of pocket for heat pump, $22,000+ for solar.
Option 2 - Equipment Breakdown Coverage: $50/year + $1,000 deductible. Covers full replacement value. If heat pump fails: insurance pays $11,000. If solar inverter fails ($7,000): insurance pays $6,000.
Savings with equipment breakdown coverage: $550/year + better coverage
Protect Your Solar Investment
$150-400/year • Up to $15,000-50,000 coverage
Equipment damage, theft, roof leaks, and production guarantees.
Get Coverage Options →Real Scenarios: When Each Product Works
Scenario 1: House Fire
Situation: Kitchen fire causes $80,000 in damage to your home.
Who pays:
- Homeowners Insurance: Covers $79,000 (after $1,000 deductible)
- Home Warranty: Doesn't cover fires or structural damage
Winner: Homeowners insurance (required for this)
Scenario 2: AC Breaks During Summer
Situation: 12-year-old AC compressor fails. Repair cost: $2,800.
Who pays:
- Homeowners Insurance: Doesn't cover normal equipment failures
- Home Warranty: Covers repair minus $100 service call fee = you pay $100
- Equipment Breakdown Coverage: Covers repair minus insurance deductible = you pay $1,000
- Self-Insure: You pay full $2,800
Winner: Home warranty (best for this scenario)
Scenario 3: Solar Inverter Failure
Situation: Power surge damages $7,000 solar inverter.
Who pays:
- Homeowners Insurance: Typically doesn't cover solar equipment failures
- Home Warranty: Solar panels almost never covered
- Equipment Breakdown Coverage: Covers full replacement minus deductible = insurance pays $5,500
Winner: Equipment breakdown coverage (only option that covers this)
Scenario 4: Multiple Appliance Failures
Situation: Within one year: dishwasher ($800), refrigerator ($1,200), and garage door opener ($400) all fail.
Who pays:
- Homeowners Insurance: Doesn't cover appliance failures
- Home Warranty: $600 annual + $300 service fees (3 × $100) = $900 total. Warranty covers $1,500 in repairs.
- Equipment Breakdown Coverage: Would cover but 3 separate deductibles = $3,000 out of pocket
- Self-Insure: Pay full $2,400
Winner: Home warranty (best for multiple small claims)
The Right Protection for Your Home
Bottom line: Get homeowners insurance (required). For expensive single systems like HVAC, heat pumps, or solar, add equipment breakdown coverage ($25-75/year). Only get a home warranty if you have multiple aging appliances and can't build an emergency fund.
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Sources & Methodology:
- Insurance cost data from Insurance Information Institute (III.org)
- Home warranty pricing from major providers: American Home Shield, Choice Home Warranty, Select Home Warranty (December 2024)
- Coverage comparisons based on standard policy terms and exclusions
- Equipment breakdown coverage data from State Farm, Allstate, Nationwide, USAA
- Claim scenario data aggregated from consumer reports and warranty company disclosures