Home Warranty vs Homeowners Insurance - What's the difference?

Both a home warranty and a homeowners insurance cover (or home insurance) are designed to protect the assets of homeowners: a home, along with its systems and appliances, are generally the most valuable assets for American families. Both coverages are designed to protect them.

Home warranties generally cover the systems, major appliances and some of the personal belongings (such as electronics) of homeowners while home insurance coverage is designed to cover the financial losses associated with damage or loss of a property you own.

What’s the Difference Between Homeowners Insurance and a Home Warranty?  

The main difference between a home warranty and home insurance is quite simple. Homeowners insurance—or house insurance, as it’s more casually called—typically protects your home from events like fire, smoke, theft, fallen trees, or damage caused by weather or a natural disaster. 

A home warranty plan protects your budget when covered appliances and home systems components break down due to normal wear and tear.  You can also check our article on what is a home warranty.

In other words, homeowners insurance covers those events that are unlikely to happen but would often entail a great cost. This is why a home insurance premium can go up if you live in an area prone to flooding or other extreme weather events. On the other hand, home warranty companies offer peace of mind on those events that you're the most likely to experience: when appliances break, when plumbing gets clogged, or the A/C stops working. In other words, this additional coverage is an extended warranty that removes the financial burden from unexpected expenses.

Home warranty coverage can potentially save you hundreds or even thousands of dollars, and it helps you avoid the headache of finding a trusted service contractor to make the repairs. For American Home Shield members, a home warranty—or as we like to call it, a home service plan—includes coverage of major components of up to 23 important appliances and home systems, home maintenance services like an HVAC tune-up, and optional add-ons to customize your coverage. We provide plans for homeowners like you who have systems and appliances to keep in working order while also protecting their budget.   

Take a look at this side-by-side comparison of homeowners insurance vs. a home warranty.  

What is Homeowners Insurance?  

Homeowners' insurance coverage typically includes any accidental damage to your home and belongings due to theft, storms, fires, and some natural disasters. There are four primary areas covered under a homeowners insurance policy:  

• The interior of your home 
• The exterior of your home 
• Personal property in case of theft, loss, or damage 
• General liability that can arise when a person is injured while on your property 

How Much is Homeowners Insurance? 

A home insurance policy is usually mandatory, and a bank will generally require you to obtain one before issuing a mortgage on a home. In terms of typical homeowners insurance cost, the policy is renewed yearly, and its average annual cost is $1,312; though, this cost varies widely from state to state. All home insurance policies offer a deductible, which you'll pay when your claim is approved. The policy will then take care of any additional costs. Of course, you’ll want to do your research when it comes to home insurance comparisons, as different home insurance companies offer different rates and deductible requirements. 

How Does Homeowners Insurance Work? 

So, for instance, say you purchase homeowners insurance and a pipe breaks and floods your kitchen. An insurance adjuster will come to your home and fill out a claim to repair or replace any damaged items in your home. Once the claim is approved, the insurance company will deduct the amount of your deductible and issue you a payment for the rest of the balance to repair your home. This deductible can also assist in lowering your yearly policy premium. The higher your deductible, the lower your yearly house insurance policy will cost. The National Association of Insurance Commissioners is a terrific resource for more information on home insurance, such as buying homeowners insurance and understanding what is not covered by homeowners insurance. 

Homeowners insurance generally provides liability protection. This means that in case of third parties being affected by elements of your property (for example, a branch of one of your trees damaging a neighbor's house) your personal liability is limited and the homeowners' insurance policies can protect you.

What is a Home Warranty?  

A home service plan is a service contract that provides for the repair or replacement of major components of your systems and appliances that fail due to age and standard wear and tear. For instance, a home warranty cover offers a warranty on parts of your kitchen appliances, washer and dryer and major home systems such as HVAC, electrical systems, mechanical systems and plumbing systems are all typically covered under this home service plan. This includes fixing them in case they break, and often covering the replacement cost if they cannot be fixed. You can also cover larger systems like your pool and spa.

For more information, you can check a home warranty contract sample.

How Much is a Home Warranty? 

Home warranties typically have 12-month contract terms and, unlike homeowners insurance, are not mandatory to obtain a mortgage. A home service plan is purely elective – typically coming after you have already purchased a home—but it’s a smart purchase. Home service plans can be purchased for a low monthly cost, with add-on coverage for items like roof leak repair or pools and spas available for an additional cost.  

How Does a Home Warranty Work? 

Let's say it’s the middle of the summer and your HVAC system stops working.  Just file a claim online, and a qualified contractor will be sent to your home to assess the problem. If it's determined that the system is no longer working because of age or wear and tear, and the breakdown is covered under the terms of your service contract, the contractor will make the repair. If it is beyond repair, they will replace the appliance or system component for just the cost of your Trade Service Call Fee. (A one-time service call costs either $75, $100, or $125 based on the amount you choose when you become a member.) American Home Shield pays the remaining amount for the repair or replacement based on the plan that you have selected and subject to contract limitations and exclusions. It’s as simple as that! 

Regardless of the differences between a home warranty and home insurance, let’s face it: life happens, and things break down. Many homeowners prefer to purchase both types of policies to fully protect their homes and wallets. No matter what, American Home Shield is the most trusted home warranty company in America, with more than 2 million clients, and we're here to help your household run smoothly.