Home Warranty vs. Home Insurance: Not the Same, Not a Substitute

Education & Training with HomeInsurance.com

Only one word separates the phrases home warranty and home insurance, but what a difference a word makes.

Despite the fact that both of these products involve homes, a warranty and an insurance policy are not interchangeable. Neither one is inherently superior to the other – they simply serve different purposes.

What is a home warranty?

A home warranty resembles the kind of limited-time agreement you might choose when buying an appliance — a service contract, in other words. In addition to certain major appliances, a home warranty can also cover some essential home systems.

The home warranty industry sold more than 4 million service contracts in 2015, but what do those contracts provide? As the name implies, a home warranty or home service contract may cover service, replacement or repair of major appliances and systems due to wear and tear from normal use. Examples of items that may be covered by some home warranties include:

  •  Appliances: Dishwashers, garbage disposals, water heaters
  •  Systems: Plumbing, electrical, heating/cooling

A home warranty essentially involves maintenance and upkeep, which is where it differs fundamentally from a home insurance policy. 

Insurance offers protection from perils

The question of home warranties vs. home insurance boils down to the everyday vs. the very bad day.

A home warranty may cover the type of normal damage that could develop as appliances and home systems age. Home insurance, on the other hand, focuses on out-of-the-ordinary events sometimes called perils.

Consider the example of a cooking fire that breaks out in your kitchen. If the fire causes damage to the stove, the contents coverage of your homeowners insurance policy may cover the cost of repair or replacement. More importantly, your homeowners policy may also cover damage to the structure of the home itself. In either case, the fire is the event that triggers the coverage as opposed to everyday wear and tear.

Home insurance differs from a home warranty in another important way: liability protection. With liability coverage, you could receive protection from medical and legal expenses that arise from a guest suffering an injury at your home. 

Why home insurance is often required

Unlike a home warranty, home insurance coverage is rarely optional. In order to protect their investment, mortgage companies usually require borrowers to get homeowners insurance.

Since it has such fundamental differences from a home insurance policy, you can't really use a home warranty as an insurance substitute. An aspiring homeowner who confuses a home warranty with home insurance, or vice versa, could wind up having an awkward conversation with the mortgage banker.

At the same time, nothing says you couldn't get a home warranty to supplement your insurance policy. Although critics question the value of some home warranties, protection against breakdowns may offer some homeowners extra peace of mind. Just remember to read the fine print to get a sense of what could be excluded from coverage.

One word makes a huge difference

Let's say you have a car under warranty. If it developed a transmission problem, you probably wouldn't call your auto insurance agent to get it fixed. By the same token, you probably wouldn't report an accident to the car dealer or the manufacturer. The same basic distinction applies between home warranties and home insurance.

The phrases that describe them may differ only slightly, but in practice it's a world of difference.

Barry Bridges writes for Quotes.Safeco.com and HomeInsurance.com, an online resource for homeowners and drivers across the country. Offering automobile and home insurance quotes, consumers rely on HomeInsurance.com for competitive rates from top-rated insurance carriers. The HomeInsurance blog provides fresh tips and advice on a range of financial topics to help homeowners and homebuyers make educated decisions about their insurance purchases. 


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