Home Warranty vs. Home Insurance: Which Is Right for You?

Purchasing a home is one of the largest financial decisions most people will make in their lives. Protecting your investment is essential, but understanding the difference between a home warranty and home insurance can save you time, money, and headaches. In this guide, we’ll break down what each covers, how much they cost, and when you might need both for total peace of mind. 

What Is a Home Warranty?

A home warranty is a service contract designed to cover repair or replacement costs for essential home systems (like HVAC or plumbing) and appliances (such as refrigerators or dishwashers). Home warranties focus on wear-and-tear issues that occur over time. 

With a home warranty, you will simply contact your warranty provider and file a claim when a system or appliance needs to be serviced. The company will then connect you with a trusted service provider to assess the problem (typically within 48 hours) and repair or replace as needed.  

Depending on how complicated the repair or replacement process is, this part of the process can take anywhere from a few hours to a few days. 

Without a home warranty, these repairs could cost you hundreds or even thousands of dollars out of pocket every year. 

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What Is Home Insurance?

Homeowners insurance will cover costs in the event your home or personal belongings are unexpectedly damaged or destroyed. It also offers liability insurance, should a guest sustain an injury in your home. 

There are several standard home insurance options with varying degrees of coverage to choose from — which we will discuss further down the page. Before you select between these options, you will want to select between various actual cash value and replacement cost policy types …  

• Actual cash value: This type of home insurance coverage is typically used for belongings. These policies will compensate you for the cost to repair or replace damaged property, minus depreciation. 
• Functional replacement cost value: These policies will pay for repair materials that are comparable but less expensive. 
• Replacement cost value: This coverage type will pay for repair materials of like kind and quality, but the payout will not exceed your coverage limits. 
• Extended replacement cost value: These insurance policies will pay out more than the face value of your coverage, up to a specified limit. 
• Guaranteed replacement cost value: This policy will pay the full cost to repair or replace your home after a covered loss, regardless of policy limits. 

What Is Covered Under a Home Warranty?

When it comes to home warranties, there are three primary types of coverage plans. In its broadest terms, home warranties usually cover: 

• Systems plans: These warranties will cover major home systems across your entire home. Systems include HVAC systems, plumbing and electrical systems, etc. 
• Appliance plans: These home warranties typically cover home appliances when they need to be repaired or replaced, such as refrigerators, ovens, dishwashers, washers and dryers, and more. 
• Combination plans: This option is a more comprehensive plan that covers both home systems and appliances. 

Some companies will also allow homeowners to build custom plans and purchase add-on protection for miscellaneous items as needed, such as a pool or second refrigerator. 

Some items that do not fall under average home warranty packages include: 

• Garage doors and their tracks 
• Windows 
• Walls and doors 
• Sprinkler systems 
• Window A/C units 
• Alarm systems and their wiring and ornamental fountains 

Additionally, there are types of damage to a home that a warranty will usually not cover. This includes pre-existing conditions, issues caused by insufficient maintenance, damage from accidents and more. There are also common exclusions in many home warranty plans. We recommend comparing top home warranty companies and what they offer to find the best plan that works for your needs. 

What Is Covered Under Home Insurance?

It is important to understand what is covered under a home insurance vs. home warranty. Homeowners insurance provides people with the coverage and compensation to repair or rebuild your home after events like fire, smoke, theft, vandalism, falling trees, lightning, wind, or hail. Plans also include coverage of medical and/or legal costs due to injury of visitors. Coverage typically includes: 

• Dwelling Coverage: Repairs to your home’s structure. 
• Personal Property: Replacement of belongings like furniture or electronics. 
• Liability Protection: Covers legal expenses if someone is injured on your property. 

Typically, policies will also cover extensions to your home such as garages, sheds, barn, outdoor grills or fireplaces, and fences. Additions such as a swimming pool or hot tubs may be included, but will likely carry an additional cost. 

Your plan may also cover expenses accrued during repairs, such as hotel stays and restaurant meals, or compensation for lost rent if the property is a rental investment. 

Be sure to thoroughly read through your policy protections and understand its limits. For example, most policies do not include earthquake or flood coverage — though might be available for additional fees. 

Do You Need a Home Warranty or Home Insurance Plan?

While not legally mandated in the same way auto insurance typically is, home insurance will likely be required by your mortgage lender. If your home is paid off, home insurance is technically optional, though it is highly encouraged. 

On the other hand, a home warranty is optional for most homeowners. However, extra protection for your home is a great way to maximize your investment and avoid costly repair or replacement expenses down the road. When exploring if a home warranty plan is right for you, consider… 

• How old is your home? If your home — or the appliances and systems in it — is older, then a home warranty is a smart idea. Older homes may mean older appliances that are prone to breakdowns. 
• Are you a first-time home buyer? Many first-time buyers see value in purchasing a home warranty during closing to prevent headaches and expenses later. 
• Are you planning to sell your home? Added coverage can protect the hard work you put in before bringing the house to market. Plus, warranty plans can often be transferred to the new homeowners to entice potential buyers. 

Home Warranty vs. Home Insurance: A Quick Comparison Chart 

While both home warranties and home insurance provide financial protection for homeowners, they serve distinct purposes. Understanding these differences can help you decide which coverage best suits your needs — or whether both are essential. Below is a quick comparison of key features, costs, and coverage to guide your decision. 

Many homeowners opt for both a warranty and insurance to cover a wider range of issues. To summarize, home insurance handles major disasters, while a warranty takes care of smaller, routine repairs. 

Deciding on the Best Plan for You

It’s important to understand the ins and outs of home warranty vs. home insurance plans with a professional. That’s where Modernize comes in. 

After telling Modernize about your needs and expectations, we can quickly connect you with trusted home warranty providers in your area to help you make the most of your home investment. Home warranty professionals can also talk you through the decision of whether to choose a home warranty vs. home insurance. 

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