Homeowners Insurance vs. Home Warranty: Why You Need Both

When you’re new to homeownership, you deal with unexpected twists and turns. The process of buying a house, moving in, and managing your household leaves plenty to figure out.

That’s why understanding the difference between homeowners insurance vs. a home warranty is essential. Both provide financial protection and peace of mind, but they serve very different purposes. In this guide, we’ll break down the key differences, explain why you might need both, and show how First American home warranty plans can complement your insurance coverage.

Read more: What Is a Home Warranty?

What Does Homeowners Insurance Cover?

Homeowners insurance protects your home and belongings from incidents such as fire and natural disasters, vandalism, accidents, and more. While not required by law, most mortgage companies require it. The premium is often included with your monthly mortgage payment if you have an escrow (or impound) account.

A homeowners insurance policy typically covers:

• The structure of your home (repair or rebuild costs up to your policy limits)
• Other stand-alone structures (like a detached garage or shed)
• Personal possessions (furniture, clothing, electronics, etc.)
• Liability protection (if someone is injured on your property)

What Homeowners Insurance Doesn’t Cover

While homeowners insurance protects against major disasters, it generally does not cover home systems or appliances when they break. This means if your air conditioner stops working, or your refrigerator fails, or a pipe backs up, your homeowners insurance won’t cover the costs. That’s where home warranty coverage comes in.

What Does a Home Warranty Cover?

Home warranties cover appliances and systems that you use every day to help your household run smoothly. While homeowners insurance covers catastrophic events that may happen, a home warranty covers many everyday issues and home repair expenses that are part of owning a house.

Sudden repairs to appliances or systems like your furnace, water heater, or refrigerator can strain your wallet. When covered home systems and appliances break, a home warranty steps in to cover repair and replacement costs that might otherwise set you back hundreds or thousands of dollars.

A home warranty can cover:

• HVAC systems (heating and air conditioning)
• Plumbing systems and water heaters
• Electrical systems
• Kitchen appliances (refrigerator, oven, dishwasher, built-in microwave)
• Laundry appliances (washer and dryer)
• Garage door openers

First American Home Warranty has a range of plans and coverage options for every budget, making it a worthwhile investment for your home.

What Home Warranties Don’t Cover

Home warranties typically don’t cover cosmetic damage or damage caused by misuse or neglect. They also don’t cover modifications or alterations to structures.

Reading your home warranty contract carefully ensures that you understand the terms and limitations. As long as your home systems and appliances are in working order at the start of your contract and you use them properly, a home warranty offers invaluable protection.

Homeowners Insurance vs. Home Warranty Comparison

Understanding the differences helps homeowners make informed decisions. Here’s a side-by-side comparison of homeowners insurance vs. home warranty coverage:

Here’s a simple way to think about it:

Homeowners insurance covers events that might happen, but you hope never do, like a fire, theft, major water damage, or a tree falling on your roof.

A home warranty covers breakdowns that will inevitably happen, because appliances and systems inevitably fail. For example, a home warranty can step in when your refrigerator stops cooling, or your aging HVAC system gives out and needs to be replaced.

The Cost of Homeowners Insurance vs. a Home Warranty

When comparing homeowners insurance vs. a home warranty, it’s important to understand how costs are structured. Each type of coverage has a different payment model, and both can impact your budget in unique ways.

Homeowners Insurance Costs

• Premiums are influenced by factors such as the value of your home, its location, and the type of risks most common in your area.
• If you file a claim, you’ll pay a deductible before your insurance coverage takes effect.
• Coverage is renewable annually.

Home Warranty Costs

• You pay an annual or monthly fee for coverage, typically based on the size and type of home (single-family, condo, etc.).
• When you submit a service request for a covered appliance or system that has failed, you’ll pay a service fee to start the repair/replacement process.

Note that even with a home warranty there can be costs that aren’t covered, such as for modifications.

• Your home warranty contract can be renewed annually.

For both a home warranty and homeowners insurance, it’s important to review your contract for specific coverage, limits and exclusions.

Why You Might Want Both

Many homeowners mistakenly assume that when their HVAC, plumbing, or other home system fails, their homeowners insurance will cover it. Insurance protects against major disasters, while a home warranty protects your budget from everyday appliance and system failures.

Many homeowners find that combining both homeowners insurance and a home warranty provides optimal budget protection and peace of mind, since both protect your home in different ways.

How to Choose the Right Home Warranty

When selecting coverage, consider your home’s age, the condition of your appliances and systems, and your budget. Older homes often benefit more from a home warranty because their systems and appliances are more prone to unexpected failures.

First American offers a variety of plans, along with options and upgrades that let you customize coverage to fit your home’s needs. It’s easy to compare plans and see what’s covered.

Why Choose a First American Home Warranty?

At First American, our home warranties are backed by over 40 years of experience, offering industry-leading coverage and exceptional value. Our network of prescreened technicians ensures your covered appliances and systems are protected.

Understanding the difference between homeowners insurance vs. a home warranty helps you make confident, informed decisions for protecting your home. Get a free home warranty quote today and learn how our plans can complement your insurance coverage and provide valuable peace of mind.