Home Warranty vs. Homeowners Insurance: What Each One Covers

These two get mixed up all the time, and the difference matters when something breaks. A home warranty and homeowners insurance cover different things, and most homeowners need the second one far more than the first. Here's how I explain it to buyers and sellers.

What Homeowners Insurance Covers

Homeowners insurance protects you from sudden, unexpected damage like fire, wind, or theft, and it includes liability coverage if someone is injured on your property. Nearly every mortgage lender requires it, and what's covered depends on the policy. Flood damage usually isn't included, which is why a separate flood policy comes up in some areas.

What a Home Warranty Covers

A home warranty is a service contract that pays to repair or replace certain systems and appliances when they wear out from normal use, such as the HVAC, water heater, or dishwasher. You pay a yearly fee, plus a service fee each time you make a claim. Plans differ in what they list as covered, and they often have caps and exclusions.

How Warranties Come Up in a Sale

Sellers sometimes offer a home warranty to buyers as a bonus, and buyers sometimes ask for one during negotiation. It can add peace of mind on an older home, but read the fine print on what it excludes and how claims are handled before you count on it.

Which One Do You Need?

Insurance is a must. A warranty is optional, and whether it's worth it depends on the age of the home's systems and how you'd feel about an unexpected repair bill. I'm happy to talk through it with you before you decide.