Homeowner’s Insurance vs. Home Warranty: What’s the Difference?

Force-placed-ins-money-house-article-2Because your home is one of your most valuable investments, it is important to protect it. There are two primary ways to do that: homeowners’ insurance and home warranty. While both are important resources, they cover different things. Here are some of the key differences you should understand before purchasing them.

Homeowners’ Insurance

As American Home Shield points out, a home insurance policy covers accidental damage to your home due to theft, storms, fires and some natural disasters. Note: some natural disasters like floods and earthquakes require separate policies. Homeowners’ insurance covers four key areas:

  1. Interior of your home
  2. Exterior of your home
  3. Personal property in case of theft, loss or damage
  4. General liability when someone is injured on your property

If you have a mortgage on the home, your lender will require you to have a homeowners’ insurance policy. How much insurance you need depends on the types of coverage, the value of your home, and the amount of any mortgages on the property. Your lender and insurance agent can tell you the minimum required amount as well as make recommendations. Their advice will also be based on whether you have replacement cost coverage, actual cash value, market value coverage or stated value.

Homeowners’ insurance is renewed annually, and the yearly premium ranges from $300 to $1,000, depending on coverage amounts and your deductible. A higher deductible typically means a lower premium.

Home Warranty

A home warranty is a completely different type of coverage. It is a service contract that provides for the repair or replacement of your home’s system components:

  • Heating, ventilation, air conditioning (HVAC)
  • Electrical
  • Plumbing
  • Kitchen appliances
  • Washer/dryer
  • Pools and spas (usually available as an add-on)

A home warranty is usually good for 12 months, and it is voluntary. You do not need a home warranty to qualify for a home loan. American Home Shield says the average cost of an appliance and system combo plan is about $75 per month, or $900 a year. Add-on coverages for pools and spas are additional. Home warranties are particularly useful when purchasing an older home with older systems and appliances. $75 a month is a bargain compared to having to foot the bill for major repairs or replacements.

Home warranties are helpful to home sellers because it may help them to sell their homes faster because their homes are more marketable. It may also protect them from legal disputes if major problems arise after the sale. Home warranties are also useful to home buyers because they help protect major systems in the home as well as cash flow as the buyers move into a new home.

Both types of coverage offer peace of mind in exchange for a premium, and can protect you from financial surprises should something unexpected happen to or in your home. Check with a trusted Realtor® for recommendations of reputable homeowners’ insurance agents and home warranty providers when you are shopping for your next home.


Marti Reeder, Realtor, Managing Broker