There are a lot of similarities between a home warranty and homeowners insurance. With both policies, you pay a monthly fee and a service fee, also known as a deductible in the insurance industry. The biggest difference between a home warranty and home insurance is what they cover.
Many homeowners erroneously assume that their home insurance will cover all unforeseen expenses and liability associated with homeownership. In reality, it’s reserved for events such as a natural disaster, fire or burglary — what are called perils in insurance parlance. A home warranty protects your major appliances and systems in the event they malfunction due to normal wear and tear. Some home insurance policies may cover appliances and built-in systems, but these policies often come with a high deductible.
In many ways, a home warranty policy supplements the gaps of homeowners insurance. As an example, a home warranty may cover the repair or replacement of a broken water heater when it’s worn out from years of use, whereas you may file a claim with your homeowners insurance if your water heater explodes, has a major leak or causes some form of structural damage.
Neither home insurance nor home warranties are legal requirements of homeownership. However, your mortgage provider may require that you enroll in a home insurance plan at the time you buy a home.
Although homeowners can purchase a home warranty at any time, it may be particularly attractive to new home buyers looking for the peace of mind that they aren’t solely liable for the financial burdens associated with maintaining their home’s built-in systems and appliances. Home sellers may also purchase a home warranty in an effort to entice potential buyers.
A home warranty plan is a type of home service contract, and companies within the industry are regulated by each state’s independent governing bodies. While it functions like insurance, legally, it is not insurance. Home warranties cover the repair, replacement and service of covered items, such as your electrical system, water heater and kitchen appliances.
Home warranties are particularly attractive for homeowners who either don’t have the savings to cover unexpected, expensive repairs or don’t have the time to research reputable contractors when their systems and appliances break down. However, some homeowners — especially those who have newer, higher-end systems and appliances that are unlikely to break down in the immediate future — may save more in the long run without a home warranty if they have the budget to cover any needed repairs.
To use your home warranty, you should file a claim as soon as you notice a malfunctioning appliance or home system. Some companies may deny your claim if it’s clear the covered item has been out of commission for a while. Once you request service, a technician will visit your home to diagnose the issue and determine if it’s covered under your existing policy.
What Does a Home Warranty Cover?
Home warranty coverage will vary from provider to provider but at the core of the industry, all providers cover a suite of appliances and built-in systems. Many service providers will offer a basic plan tier that either covers just appliances or systems and then a more comprehensive plan that covers a combination of built-in systems and appliances. It’s important to read the fine print in your home warranty contract carefully so that you are aware of any exclusions and limitations before you file a claim.
The most commonly covered built-in systems and appliances include:
Appliances
- Clothes washer and dryer
- Refrigerator
- Microwave
- Range/Oven/Cooktop/Stove
- Dishwasher
- Garbage disposal
Built-In Systems
- Air conditioning system
- Plumbing system/stoppages
- Heating system
- Ductwork
- Electrical system
- Water heater
Homeowners can customize their plans by reviewing each provider’s list of add-on options. The typical add-on options include coverage for your pool and spa, additional systems and appliances, well pump, sump pump, limited roof-leak coverage and central vacuum among others. Additional coverage options will vary quite a bit from provider to provider. Liberty Home Guard has an impressive 30 add-on options, which makes it stand out from its competitors.
What Doesn’t a Home Warranty Cover?
Home warranties specifically cover damage that occurs as a result of everyday use. Home warranty providers reserve the right to deny coverage based on insufficient maintenance.
Accidental damage, damage caused by improper installation or modification and pre-existing conditions are also often excluded from coverage. However, some companies, such as American Home Shield, cover unknown pre-existing conditions that can’t be detected via a simple mechanical test or visual inspection.
With that said, home warranty providers will typically allow you to read the service agreement before signing up for a plan. You’ll want to take extra time to read through the sample agreement thoroughly so that you are aware of any possible exclusions or limitations of your policy.
Homeowners insurance is not legally mandated, but it is a condition of nearly all mortgage lenders. While there is some variety in home insurance coverage, a typical homeowners insurance policy covers the structure of your home and the personal belongings within it, which can include many of the items covered by a home warranty, in the event of a catastrophic event. Many standard policies also cover personal property and injury liability up to a certain amount.
What Does Homeowners Insurance Cover?
Homeowners insurance covers the cost of rebuilding and replacing items damaged by destructive situations outlined in the policy, such as interior and exterior structure damage and injuries. Home insurance provides homeowners with financial protection in the event of smoke damage, theft, a fallen tree and certain kinds of weather damage, such as wind or lightning.
Home insurance will also cover the cost of additional living expenses, such as rent or hotel bills, should your home be considered uninhabitable after a perilous event. Some policies will also cover the cost of medical expenses if you or a guest is injured in your home.
What Does Homeowners Insurance Not Cover?
Unfortunately, homeowners insurance doesn’t cover all possible catastrophic events. Flood and earthquake protections, which are considered acts of God, are reserved for separate policies.
Like home warranties, homeowners insurance policies are subject to coverage caps, which means that the insurance provider will only pay up to a specified amount outlined in the coverage agreement. All other costs beyond that coverage limit will be the responsibility of the homeowner.
When you own a home, you’re responsible for every aspect of that property. From simple parts replacements on your oven to emergency roof-leak repairs and HVAC unit replacements, the costs of maintaining a home can range from minute to extensive. If you own an older HVAC unit or a kitchen full of appliances, the cost of diagnosing, repairing and replacing these items could snowball into financial hardship if you aren’t prepared.
As such, enrolling in both a home warranty and home insurance policy can be a good idea. Home insurance will step up in the event of major damage but not in smaller inconveniences, such as a broken hot water heater. That’s where a home warranty supplements the gaps of home insurance to help you stay ahead of your home’s expenses, especially if you don’t have the savings to cover unexpected breakdowns.
Our team created a comprehensive rating system to rank providers based on objective factors. We researched each company by speaking with company representatives, reading sample contracts, and analyzing and comparing consumer reviews. We deepened our research by gaining homeowner insights through surveys and focus groups.After collecting data, we scored each provider based on what matters most to homeowners: plan options, cost, trustworthiness, customer service, state availability, additional benefits and coverage specifics.Here’s the breakdown of how we scored each home warranty company on our list:
- Plan options (20%): Companies that offered at least three plan options and various add-on coverage scored the highest in this category.
- Coverage details (20%): We rated companies both on their total number of home appliances and systems covered in their plans, putting more emphasis on the most essential systems like plumbing and air conditioning units.
- Plan pricing (18%): Home warranty providers that had a service fee of $75 or less and offered combination plans for less than $50 a month earned the most points in this category.
- Trustworthiness (14%): We evaluated the Better Business Bureau (BBB) rating, sample contract availability, workmanship guarantee and years in the industry to determine the trustworthiness of each company.
- Customer service (16%): Home warranty companies that are available 24/7, 365 days a year, provide emergency services and offer customers at least two claim filing options earned the highest points in the customer service category.
- Additional benefits (8%): Companies that offer a 30-day free cancellation period earned points in this category, and any additional coverage perks and exclusive benefits a provider offered earned it extra points.
- State availability (4%): Providers that are available in all 50 states earned full credit for this category.
Our review methodology for home warranty companies is intended to provide a thorough overview of the best providers nationwide. To learn more, you can read our full home warranty methodology.
