Here's something that confuses a lot of homeowners: the difference between homeowners insurance and a home warranty. The names sound similar, and both involve paying money to protect your home, but they're actually two completely different products that solve two completely different problems. If you've ever stared at a broken water heater or a malfunctioning AC unit wondering which policy covers it, you're not alone.
Let's break down exactly what each one does, what they cost, and whether you actually need both. Spoiler alert: most homeowners benefit from having both, but for very different reasons.
What Homeowners Insurance Actually Covers
Homeowners insurance is the big one—your mortgage lender requires it, and for good reason. It protects you from sudden, unexpected disasters. Think fire, wind, hail, lightning, theft, vandalism, or a tree falling on your roof. These are called "covered perils," and they're the dramatic, often expensive events that can happen without warning.
A standard homeowners policy—usually an HO-3 policy—covers your home's structure, your personal belongings, and provides liability protection if someone gets injured on your property. In 2024, the average homeowners insurance policy costs between $2,377 and $2,522 per year, though this varies wildly by state. If you live in Florida, you might be paying over $5,600 annually, while Vermont homeowners might pay less than $1,000.
Here's what homeowners insurance does not cover: normal wear and tear. If your 15-year-old water heater finally gives up, or your dishwasher stops working because it's old, your homeowners insurance won't help. It's designed for the unexpected, not the inevitable breakdown of aging home systems.
What a Home Warranty Actually Covers
A home warranty is essentially a service contract. You pay an annual fee—typically $400 to $900 per year—and in exchange, the warranty company covers repairs or replacements when your home systems or appliances break down from normal use. We're talking about your HVAC system, plumbing, electrical systems, water heater, refrigerator, dishwasher, washer and dryer, and other major appliances.
When something covered breaks, you call the warranty company, they send out a technician, and you pay a service fee (usually $75 to $150 per visit). The warranty covers the rest of the repair or replacement cost. About 40% of home warranty providers will send someone within two days of your claim.
Unlike homeowners insurance, a home warranty is completely optional. Nobody requires you to have one. But here's why some people love them: they provide budget predictability. Instead of facing a $3,000 surprise bill when your AC unit dies in July, you pay your service fee and the warranty handles it. Research shows that new homeowners spend about 4.6% of their home's purchase price on major repairs each year—a home warranty can significantly reduce that financial uncertainty.
The Key Difference: Damage vs. Wear and Tear
Here's the simple way to remember the difference: homeowners insurance covers damage from specific events, while a home warranty covers breakdowns from normal use.
Let's use your refrigerator as an example. If a kitchen fire damages your fridge, your homeowners insurance covers the replacement. If your refrigerator is 12 years old and the compressor finally dies because it's just worn out, your home warranty covers it. Same appliance, different cause, different policy.
Or consider your HVAC system. If a hailstorm damages your outdoor AC unit, that's a homeowners insurance claim. If your aging furnace stops heating in the middle of winter because internal components have worn out, that's a home warranty claim. The difference is all about what caused the problem.
Cost Comparison: What You'll Actually Pay
Homeowners insurance typically costs $2,377 to $2,522 annually on average, though premiums have been climbing—up more than 10% in both 2023 and 2024. You'll also have a deductible, often $1,000 or $2,500, that you pay out of pocket before insurance kicks in. This isn't optional if you have a mortgage.
Home warranties are generally cheaper, averaging $400 to $900 per year, with plans ranging from about $30 to $90 per month depending on coverage levels. However, you'll pay that service call fee ($75 to $150) every single time you need a repair. If you need three repairs in a year, that's an additional $225 to $450 on top of your annual premium.
Whether a home warranty saves you money depends on how much breaks in your home. If you have newer appliances and systems, you might not need it. But if everything in your house is 10+ years old, those service fees can be way cheaper than paying $500 for a plumber, $800 for an electrician, or $4,000 for a new HVAC system.
Do You Need Both?
You absolutely need homeowners insurance—it's required by your lender, and it protects you from financial catastrophe if disaster strikes. About one in 18 insured homes files a claim each year, and the average claim payout is nearly $16,000. Fire claims average almost $84,000. You can't afford to skip this coverage.
A home warranty is optional but can be valuable depending on your situation. It makes the most sense if you have older appliances and systems, you're not handy with repairs, you want predictable costs, or you just bought a home and aren't sure about the condition of everything. About 1.4 million of the 5.64 million homes sold in 2020 came with home warranty coverage, often negotiated as part of the purchase agreement.
Together, these two products provide comprehensive protection. Insurance handles the dramatic disasters, while a warranty manages the routine but expensive breakdowns that come with homeownership. They're not competing products—they're complementary ones.
How to Get Started
If you don't have homeowners insurance yet, that's your first priority. Shop around for quotes from multiple insurers, as rates can vary significantly. Make sure you understand what's covered, what your deductible is, and whether you need additional coverage for floods or earthquakes, which aren't included in standard policies.
For a home warranty, evaluate whether it makes financial sense for your situation. Consider the age of your major systems and appliances, your emergency fund, and your comfort level with unexpected repair bills. If you decide to get one, read the contract carefully—coverage exclusions, service call fees, and claim processes vary widely between providers.
The bottom line? Homeowners insurance protects you from disaster. A home warranty protects you from inconvenience and unexpected repair bills. Both have real value, and understanding the difference helps you make smarter decisions about protecting your home and your budget.
