Owning a home may be one of the greatest investments you'll make in your life so protecting that investment is crucial. Homeowners insurance and a home warranty are two of the best ways you can protect your home and your budget.
Many people are confused by the differences between home warranty and homeowners insurance, and how they can work together to protect your home when things go wrong. How are they different? What do they cover? Why do you need both?
What Does a Home Warranty Cover?
A home warranty is an annual renewable service contract that protects many of your home’s systems and appliances. For example, a home warranty can cover your home’s electrical, plumbing, and heating systems, as well as appliances like your dishwasher, stove, refrigerator, washer, dryer, and more. These are systems and appliances that you use daily, and which fail over time with normal wear.
So how does a home warranty work? With a home warranty, you pay a low service fee (often starting at about $75) when you request service. Your home warranty provider will send a pre-screened repair professional to your home to diagnose and if covered repair the problem. If the covered item can’t be repaired, your home warranty will replace it with an item of like features, efficiency, and capacity. Learn more about how the home warranty service process works.
Home system and appliance repairs can be costly and having to suddenly replace an appliance can be a huge hit to your budget. With a First American Home Warranty, many customers place multiple calls each year and end up saving hundreds to thousands of dollars on repair and replacement costs.
Home warranties don’t cover everything, however. For example, a home warranty doesn’t typically cover cosmetic issues or damage, nor will it cover misuse or neglect. Typically, home warranty plans don't cover any modifications or changes needed when new, replacement equipment gets installed. Home warranties usually do not cover pre-existing conditions, such as a system or appliance that was broken before the coverage began (the exception to this is a home warranty that is purchased as part of a real estate transaction*).
What Does Homeowners Insurance Cover?
A homeowners insurance policy on the other hand, protects the structure of your home against damage from things such as fire, storms and severe weather, vandalism, accidents, and more. If your home is damaged or destroyed by a covered hazard, your homeowners insurance will step in and help pay to repair or replace your home. When you make a claim on your home insurance, you pay a deductible cost, which usually starts at $500 and goes up (the higher the deductible, the lower your premium).
Homeowners insurance can also protect your personal belongings if they are stolen or destroyed—sometimes even if your belongings aren’t in your home at the time. Your homeowners insurance is also designed to protect you in the event a lawsuit arises from someone injured on your property. Finally, your insurance may also cover living expenses if your home becomes unusable after a covered hazard, such as a fire.
Unlike car insurance, which is legally required in most states, homeowners insurance is usually not required by law. However, your mortgage lender typically will require that you have homeowners insurance to protect their investment in your home. Often the cost of homeowners insurance is included along with your mortgage and property tax in your monthly payment.
Like most types of insurance, homeowners policies have coverage limits and limitations. Homeowners insurance does not cover all types of hazards that can happen to your home, such as earthquakes or floods. You’ll need special earthquake insurance or flood insurance if you want protection from these events.
Homeowners insurance also doesn’t cover items that break due to normal wear or stop working over time. It won’t cover the cost when your plumbing or air conditioner breaks, or your refrigerator or water heater suddenly dies. However, this is exactly where a home warranty can help.
What are the Differences Between a Home Warranty and Homeowners Insurance
While insurance is designed to protect you against losses that could happen, a home warranty helps protects your budget from things that will fail over time. Your home systems and appliances have a limited life, and it’s not really a question of if, but when they will break. So with a home warranty, you likely will submit a claim—sometimes more than one in a year. Last year, over two-thirds of First American Home Warranty customers placed at least one claim.**
Here’s a quick summary of the differences between a home warranty and homeowners insurance.
- Often purchased with a new home for added budget protection. Can be renewed each year.
- Covers breakdown of major home systems and appliances.
- Provides for repair and replacement of covered items.
- Helps protect your budget from expensive repair and replacement costs.
- You pay a service fee each time you request service.
- Has limits and exclusions. For example, may not cover cosmetic defects or damage from misuse.
- Typically required by mortgage lender.
- Covers accidental damages from things like fire or theft.
- Helps pay to repair your home or replace personal property.
- Protects you from liability if injuries happen on your property.
- You must meet a deductible on each claim.
- Has limits and exclusions. For example, may not cover damage from earthquakes or hurricanes.
Why You Need Both a Home Warranty and Homeowners Insurance
While both home warranties and homeowners insurance protect your home (and your bank account), they do so in very different ways. As mentioned above, if you have a mortgage, you’re typically required to have homeowners insurance (and even if you don’t have a mortgage, you really should have homeowners insurance). This protects both you and your mortgage lender should your home be damaged or destroyed by a fire, severe weather, or other covered events.
A home warranty, on the other hand, protects your home’s appliances and systems that will fail over time – things like your heating or air conditioning system, water heater, and refrigerator. When these items break, a home warranty takes care of repairing or replacing these covered items.
Investing in a home warranty is a great way to supplement your homeowners insurance policy, and to safeguard your investment in your home and protect your budget. If you’re lucky, you’ll never need to file a claim on your homeowners insurance. On the other hand, a home warranty covers systems and appliances that are not covered by homeowners insurance when they break due to normal wear.
Find the Right Home Warranty to Protect Your Home
When you choose a home warranty from First American, you get industry-leading coverage backed by the First American name. We’re committed to providing superior value, and with over 35 years of home warranty experience, we have the strength and stability to honor our commitments to you.
We offer plans to fit almost every budget, and coverage and options to make sure your home – and budget – is protected. See how easy it is to check out our home warranty cost comparisons and find the right coverage for your home.
* Some plans purchased as part of a real estate transaction will protect you from unknown pre-existing conditions – if, when coverage begins, the defect wasn’t known or could not have been reasonably observed by looking at or operating the system or appliance.
** Paid invoices net of service fees in 2018, prior to deductions and/or rebates.