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

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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Household insurance inspector.
Home warranties and home insurance are often confused with one another. This is what to know. Getty Images

Owning a home can provide a wide array of benefits. This can range from serving as an investment opportunity to annual tax benefits to simply providing the owner peace of mind and security.

But there are many things to consider when purchasing (and owning) a home. That includes preparation for the inevitable repairs, maintenance and eventual replacement of common household items and appliances.

This is where both home warranties and home insurance come into consideration. Both offer the owner (and, in the case of insurance, also the lender) protection and security for when things go wrong. However, they differ and only one is mandated by the mortgage lender. It's important to understand each so you can adequately protect your home and belongings.

A home warranty can help by covering the costs of household repairs and appliances. It's something every homeowner should seriously consider. Not sure if you're in the market for a home warranty? . 

Home warranties vs. home insurance

If you're looking to avoid unexpected and potentially pricey home expenses, then you'll want to carefully consider home insurance and warranties. If you're a current homeowner, there's a good chance you already have home insurance - and a warranty may come later. Before you can decide on what you need, it's important to understand the difference between the two. 

Home warranties

A home warranty offers protection and security by covering the costs of household repairs and appliances. For a set fee paid to a home warranty company each month, you are provided service and repair (and possibly replacement) for items specified in the agreement with the company. Home warranties can cover items individually (dishwasher, refrigerator, clothes washer, etc.) or they can be grouped together as part of a larger collection.

Home warranties are not mandated by a mortgage lender and are subject to a homeowner's preferences, needs and long-term plans. Costs range depending on how many appliances you want to be covered and what kind of coverage you need but expect to spend somewhere between $25 and $100 each month (approximately).

If you think you'd benefit from having a home warranty in place, act today and from a varied list of home warranty providers.

Home insurance

Home insurance also protects the homeowner but in a different, broader sense. Home insurance is paid to an insurance company in exchange for coverage for big-ticket items. 

Home insurance can help cover you during leaks, major accidents, weather events and more. It will help you by paying for replacements and repairs needed from incidents as diverse as theft to flooding to fire and more.

Home insurance is typically mandatory when taking out a mortgage loan with a lender. Costs range depending on how much coverage the bank wants you to have, how much you personally want to have and how much it's estimated to cover your home if any of the aforementioned incidents occur. Home insurance prices vary and can also be divergent depending on where you live. The cost is usually rolled into the mortgage payments the owner makes and is paid out directly to the insurance company. 

Differences between a home warranty and home insurance

While similar and often confused for one another, home warranties and home insurance policies are not identical. This should be taken into consideration when purchasing either form of protection. 

Here are some key differences:

  • Only one is typically required: Home insurance is usually mandated by the mortgage lender to protect their investment (it's also a good bet to protect yourself should the worst occur). Meanwhile, home warranties are optional and can be purchased (or not) by the homeowner in question. 
  • They have different types of coverage: Home warranties will cover your items individually (repair, service or replacement for a microwave, for example). Home insurance will cover your home more broadly (in case of accidents or disasters). In short: you wouldn't put a home insurance claim in for a faulty fridge. Similarly, you likely wouldn't lean on your home warranty plan if your home was flooded.
  • They focus on different events: If you get a home warranty, you're likely planning on an appliance or product breaking or requiring future maintenance. Home insurance, on the other hand, prepares you for unplanned events - such as extreme weather or a burst pipe. Plus, it focuses just as much on your home's exterior as it does its interior.

Warranties offer protection for the expected, inevitable repairs while insurance is there for when the unexpected occurs. Home insurance is needed and is often mandatory and home warranties are not. But that doesn't mean you shouldn't get a home warranty. In fact, it's a smart and financially sound decision to get a home warranty now before it's needed later.

Ready to get started? . 

Edited by Jennifer Earl

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