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

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Owning a home is one of the greatest investments you'll make in your life. Protecting your assets is not just smart—it's integral. The best way to do this is to purchase a homeowners insurance policy and buy a home warranty plan. Purchasing both will cover your home, belongings, appliances, and system components in case they need replacement or repair.  

Let’s understand the difference between a home warranty and home insurance and why it's important to have both.  

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.  

What is a home warranty? A home warranty plan protects your budget when covered appliances and home systems components break down due to normal wear and tear.  

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. 

 

 

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Covers things that will happen Covers things that might happen  
HVAC Stops Working  Theft
Water Leaks  Fire Damage 
Dishwasher Stops Working Storm Damage
Toilet Overflows Floods 

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 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.  

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, parts of your kitchen appliances, washer and dryer, and HVAC, electrical, and plumbing systems are all typically covered under this home service plan. You can also cover larger systems like your pool and spa.   

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 vs. home insurance, let’s face it: life happens, and things break down. Purchase both types of policies to fully protect your home and your wallet. No matter what, American Home Shield is here to help your household run smoothly.  

AHS assumes no responsibility, and specifically disclaims all liability, for your use of any and all information contained herein.

NO TWO HOMES ARE THE SAME. THAT'S WHY WE HAVE OPTIONS. FIND A PLAN THAT FITS.
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