Home warranty vs. home insurance: What’s the difference?

As a homeowner, you want to protect your real estate investment. But understanding your coverage options can be challenging.

For example, “home warranty” and “home insurance” sound similar, but they’re very different. If your roof is leaking, do you tap into one or the other?

At Rocket Mortgage®, we’ve dealt with all types of home coverage. We’ll walk you through when to get a home warranty vs. home insurance and what to expect from each.

What is home insurance?

Home insurance is a broad type of coverage that can protect you against property damage and losses, as well as liability for any injuries that occur on your property. It’s also required by most mortgage lenders, who want to protect the home since it serves as collateral on the loan.

Let’s say your roof is damaged by hail during a big storm. If your home insurance policy covers falling objects, you could file a claim to fund the repairs needed.

Generally, home insurance can cover anything as small as a broken window or as serious as a total loss after a fire. Some insurance policies even cover your personal belongings and secondary structures like sheds and fences.

However, home insurance is getting harder to come by in states like California and Florida, where there has been a major spike in fires and floods.

What is a home warranty?

A home warranty is a narrower type of protection. It’s a service agreement that covers the cost of maintaining major housing systems and appliances for a set period. For example, it could help fund the repair of your HVAC system or a defective fridge.

Unlike home insurance, however, a home warranty is totally optional and has lower coverage limits. For example, your total annual coverage could be just a few thousand dollars. Any repair costs that exceed that amount would be paid out of pocket.

Home insurance vs. home warranty coverage

Let’s dive deeper into what’s covered under home insurance vs. a home warranty.

Common home insurance coverage

While home insurance coverage varies by policy, it’s generally pretty broad. Here are all the perils home insurance typically covers:

• Structural damage: This pays for repairing or rebuilding your home if it is destroyed or damaged by fire, hurricane, hail, lightning, or other natural disaster listed in the policy.
• Personal belongings: This covers any personal property in the home that is stolen or destroyed, such as furniture, clothes, jewelry, etc.
• Liability: This protects you against lawsuits over injuries that occur on your property. For example, if someone trips and falls off your porch, your policy can cover any legal costs.
• Additional living expenses: This covers the costs of living away from home while your house is rebuilt or repaired after becoming uninhabitable due to a covered event.

That said, home insurance generally doesn’t cover damage caused by flood or earthquake. These require separate flood and earthquake policies.

Common home warranty coverage

Home warranty coverage is more limited than home insurance. Here are some common types of home warranty plans and what they cover:

• System plans: These cover specific systems in your home, such as plumbing and electrical systems.
• Appliance plans: These cover specific appliances in your home, such as refrigerators, garage door openers, and ovens.
• Combination plans: These cover both systems and appliances, providing the most comprehensive home warranty coverage.

In addition, you may be able to include add-ons in your home warranty plan. For example, if you have a pool, you can request a rider for pool repair for an added fee.

Home insurance vs. home warranty cost

Another way home insurance and home warranties differ is in their cost. Home warranties are generally much more affordable.

According to ConsumerAffairs, the average cost of a home warranty is $350 to $900 per year. Meanwhile, the average cost of home insurance on a $300,000 house is $2,532, according to Insurify. That’s a difference of $1,632 to $2,182.

Keep in mind that home insurance costs can run even higher if you live in an area prone to natural disasters, and they’re climbing across the board. Over the last 3 years, home insurance premiums have increased by a striking 24% nationwide.

Home insurance vs. home warranty claims

Filing a claim under a home insurance policy is different than filing one under a home warranty. Home insurance policies make you pay a deductible before kicking in, while home warranties charge a service fee each time a technician is sent to your home.

Filing a home insurance claim

Here’s how to file a home insurance claim:

1. Check your policy to make sure the peril is covered.
2. Document the damage.
3. File a claim with your insurance company.
4. Wait for your funds.

Keep in mind that your insurance company will subtract your deductible before paying you. For example, if you’re approved for $25,000 but your deductible is $2,000, your insurance company will pay out $23,000, and you’ll need to cover the difference if applicable.

Once you’ve collected the funds, you can typically hire a service provider of your choice to complete the repair.

Filing a home warranty claim

Here’s how to file a home warranty claim:

1. Understand your coverage.
2. Request a service visit.
3. Pay your service fee and any uncovered expenses.

Remember that your home warranty carrier will only cover service expenses up to the coverage limits outlined in your contract. They’ll typically also choose a service provider in their network, though you may be able to offer your input. These are important factors to consider when deciding whether a home warranty is worth it.

The bottom line: Home insurance provides more comprehensive coverage for your home

Ultimately, home insurance and home warranties sound similar but serve different purposes. Home insurance protects you against major risks like fires, storms, and liability claims, while a home warranty helps cover repairs and replacements for home systems and appliances.

Another smart option for upgrading your appliances or improving your home is a cash-out refinance. It lets you tap into your existing equity by replacing your current mortgage with a new one. Explore your refinancing options today by applying for a loan from Rocket Mortgage®!