Quick answer: Homeowners insurance protects your home and belongings against sudden perils such as fire, wind, hail, theft and burst pipes, and it includes liability coverage. A home warranty is a service contract that pays to repair or replace covered home systems and appliances that break down from normal wear and tear, which insurance excludes. Lenders require homeowners insurance when you have a mortgage, while a home warranty is optional. They solve different problems, so one is not a substitute for the other.
Real estate agents often offer a home warranty at closing, and sellers sometimes include one to make a listing more attractive. At the same time, your lender requires homeowners insurance. Because both involve paying for problems with your house, the two are easy to confuse.
This article explains the differences, using the Insurance Services Office (ISO) Homeowners 3 Special Form as the reference for insurance and typical home warranty contract terms for comparison. For the overall structure of a homeowners policy, see our homeowners insurance guide.
Sources: Insurance Services Office (ISO) Homeowners 3 Special Form (HO 00 03) coverages and exclusions for wear and tear and mechanical breakdown; Florida Statutes Chapter 634, Part II, on home warranty associations regulated by the Florida Office of Insurance Regulation; California Department of Insurance information on home protection companies; Texas Real Estate Commission rules on residential service companies; Insurance Information Institute (Triple-I) and National Association of Insurance Commissioners (NAIC) consumer guidance. Policies and contracts differ. This is general information, not insurance advice. Read your own policy and contract.
The Core Difference
The simplest way to separate the two is by the cause of the problem.
- Homeowners insurance pays for sudden, accidental damage from covered perils. It specifically excludes wear and tear, deterioration, mechanical breakdown and lack of maintenance.
- A home warranty pays for repair or replacement when covered systems and appliances fail from normal use and age, which is exactly what insurance excludes.
| Feature | Homeowners insurance | Home warranty |
|---|---|---|
| What it is | Insurance policy | Service contract |
| Covers | Sudden damage from perils like fire, wind, hail, theft | Breakdown of systems and appliances from normal wear |
| Structure of home | Yes | No |
| Personal belongings | Yes | No |
| Liability for injuries to others | Yes | No |
| Required by lenders | Usually yes, with a mortgage | No |
| Cost structure | Annual premium plus deductible per claim | Annual or monthly fee plus a service fee per visit |
| Who chooses the repair provider | Usually you, with insurer approval | Usually the warranty company |
Our explainer on Coverages A through F details what a homeowners policy covers section by section.
What Homeowners Insurance Covers
A standard HO-3 policy includes:
- Coverage A, Dwelling: the house itself, on an open perils basis.
- Coverage B, Other Structures: fences, sheds and detached garages.
- Coverage C, Personal Property: belongings, on a named perils basis.
- Coverage D, Loss of Use: additional living expenses if the home is unlivable after a covered loss.
- Coverage E, Personal Liability: legal responsibility for injuries or damage to others.
- Coverage F, Medical Payments to Others: minor medical bills for guests injured on the property.
What it does not do is pay to replace a water heater that simply wore out or a dishwasher whose motor died. Our article on water heaters and home insurance gives a good example of where that line falls.
What a Home Warranty Typically Covers
Home warranty plans vary, but most offer tiers such as:
- Systems plans: heating, air conditioning, ductwork, electrical, plumbing, water heaters and sometimes garage door openers.
- Appliance plans: refrigerators, ovens and ranges, dishwashers, built-in microwaves, washers and dryers.
- Combination plans covering both.
- Optional add-ons such as pools and spas, well pumps, septic systems, roof leaks and extra refrigerators.
When something covered breaks, you contact the warranty company, pay a service fee for the visit and the company sends a contractor from its network to diagnose and repair the item, or replace it if it cannot be fixed.
Common Home Warranty Limits and Exclusions
Home warranty contracts frequently include terms that surprise buyers:
- Coverage caps per item or per year, which may be lower than the cost of replacing a major system.
- Pre-existing condition exclusions for problems that existed before the contract began.
- Maintenance requirements, with denials for failures linked to lack of maintenance.
- Code upgrade and permit limits, where the contract will not pay to bring equipment up to current code.
- Exclusions for secondary damage, such as water damage caused by a failed appliance.
- Waiting periods at the start of the contract, often around 30 days.
- Limited choice of contractors and the company’s right to repair rather than replace.
Read the sample contract before buying, not after a breakdown.
Who Regulates Home Warranties
Because a home warranty is a service contract rather than standard insurance, oversight differs by state.
- Florida regulates home warranty associations under Chapter 634, Part II, of the Florida Statutes, administered by the Office of Insurance Regulation.
- California licenses home protection companies through the Department of Insurance.
- Texas regulates residential service companies through the Texas Real Estate Commission.
Other states use their insurance department, attorney general or consumer protection agency, and some have limited specific rules. Checking that a company is licensed or registered in your state, and looking at complaint records, is a sensible first step.
How Claims Differ
Insurance claims start with notice to your insurer. An adjuster inspects the damage, determines whether a covered peril caused it and pays according to the policy, after your deductible. You often choose your own contractor, and claims can involve larger amounts, such as rebuilding after a fire.
Home warranty claims start with a service request. The company assigns a contractor, you pay the service fee and the contractor diagnoses whether the failure is covered under the contract. Disputes often involve whether a problem was pre-existing, caused by poor maintenance or above the coverage cap.
Some situations involve both. If a water heater bursts and floods a finished basement, a home warranty may help replace the water heater, subject to its terms, while homeowners insurance may cover the sudden water damage to walls, floors and belongings. Our guide to getting insurance to pay for water damage covers that side of the claim.
Equipment Breakdown Endorsements: A Middle Option
Many insurers offer an equipment breakdown endorsement that adds coverage for sudden mechanical or electrical breakdown of home systems and appliances, including power surges. It differs from a home warranty:
- It is part of your insurance policy, regulated as insurance.
- It covers sudden breakdown, not gradual wear.
- It usually has its own deductible and limit.
- You generally choose your own repair provider.
Some homeowners use an equipment breakdown endorsement instead of a home warranty, and some use both. Compare the cost, covered items and claim process.
A Checklist for Reading a Home Warranty Contract
Before signing, read the full contract, not just the brochure. Questions worth answering include:
- Which items are covered, and which are listed as excluded parts within covered items? Some plans cover a refrigerator but not its ice maker, for example.
- What are the per-item and annual caps? Compare them with realistic replacement costs for your HVAC system and water heater.
- How much is the service fee, and does it apply per visit or per claim?
- What counts as pre-existing, and how does the company determine it?
- What maintenance records does the company expect you to keep?
- Does it pay for code upgrades, permits, refrigerant, crane fees or haul-away of old equipment?
- Can you use your own contractor in an emergency, and will you be reimbursed?
- What is the cancellation policy, and is any refund prorated?
- How are disputes handled, including any arbitration requirement?
- Is the company licensed or registered in your state?
Written answers to these questions help avoid surprises when something breaks.
Common Misconceptions
Several beliefs about these products lead to frustration later.
“My home warranty covers water damage.” Most home warranties cover the failed appliance or system, not the damage it causes to floors, walls or belongings. That damage, if sudden, is a homeowners insurance question.
“My homeowners policy will replace my old furnace.” Insurance pays for sudden damage from covered perils, not replacement of equipment that wears out.
“A seller-paid warranty means the home has no problems.” A warranty does not replace a home inspection, and pre-existing conditions are usually excluded.
“A home warranty can replace insurance on a paid-off home.” Without insurance, you would have no protection for fire, storms, theft or liability claims, which are the risks that can cause the largest losses.
Weighing the Cost
Compare the annual cost of a warranty, plus service fees for the visits you expect, against your realistic repair risk. The age of your systems, your savings and your comfort with finding contractors all matter. An equipment breakdown endorsement may cost less, so get a quote from your insurer before deciding.
When a Home Warranty May Be Worth Considering
A home warranty can be useful in some situations:
- You bought an older home with aging systems and appliances and limited savings for repairs.
- The seller is paying for the first year at closing.
- You want a single phone number for repairs and do not have trusted contractors.
- You understand the caps and exclusions and the fees fit your budget.
It may be less useful if your systems are new and under manufacturer warranty, you have an emergency fund for repairs or the contract caps are too low to matter for your largest systems.
Renters, Condo Owners and Landlords
The comparison shifts a little depending on how you hold the property.
Renters usually do not need a home warranty, because landlords are generally responsible for repairing building systems and supplied appliances. A renters insurance policy protects your belongings and liability.
Condo owners carry an HO-6 policy for their unit and belongings, while the association’s master policy covers common areas. A home warranty may cover appliances and systems inside the unit, such as a water heater or HVAC air handler, depending on what the association maintains.
Landlords sometimes buy home warranties for rental properties to handle tenant repair calls. Landlord or dwelling fire policies, not standard homeowners policies, insure rented homes, and some home warranty companies offer specific plans for rentals.
Buying a Home: Coordinating Both
Closing day is when both products usually come up. Your lender will require proof of homeowners insurance before funding the loan, and many buyers receive a home warranty offer from the seller or agent at the same time. Our guide to buying homeowners insurance before closing explains how to bind coverage on time.
Use the home inspection report to decide whether a warranty makes sense. An inspector who notes an aging furnace or water heater gives you a clearer picture of which items may need repairs soon.
Frequently Asked Questions
Is a home warranty the same as homeowners insurance?
No. Homeowners insurance covers sudden damage from perils like fire and storms, plus liability. A home warranty is a service contract covering breakdowns of systems and appliances from normal wear.
Do I need both a home warranty and homeowners insurance?
Homeowners insurance is usually required by lenders and protects against major losses. A home warranty is optional and covers repairs insurance excludes.
Does homeowners insurance cover appliances that break?
Not when they break from age or mechanical failure. Appliances damaged by a covered peril, such as fire or lightning, are generally covered.
Can a home warranty company deny a claim?
Yes. Common reasons include pre-existing conditions, lack of maintenance, items not covered under the plan and costs above the coverage cap.
Is equipment breakdown coverage better than a home warranty?
It depends on your needs. Equipment breakdown coverage is insurance for sudden breakdowns with your choice of repairer, while a home warranty covers normal wear through the company’s contractor network.
The Bottom Line
Homeowners insurance and home warranties cover different risks. Insurance protects the structure, belongings and your liability against sudden perils, while a home warranty helps with the wear-and-tear repairs insurance excludes. Keep homeowners insurance in place, and evaluate a home warranty or equipment breakdown endorsement based on the age of your systems and your repair budget.
