Home Warranty vs. Home Insurance: What’s the Difference?

You head to the kitchen for a snack, only to discover that the fridge isn’t working. The hummus you wanted is at room temperature, and the milk is already starting to smell a little funky. You have home insurance — but is it going to cover both issues? Or do you need a home warranty plan as well?

Both homeowners insurance and a home warranty can help pay to repair or replace your appliances or major home systems but in different scenarios. A home warranty pays for wear and tear, and homeowners policies cover issues related to property damage such as a fire or storm.

Your mortgage lender probably requires that you have homeowners insurance, but a home warranty is optional. Here’s what you need to know about how their coverage differs.

A home warranty is a service contract for major appliances and household systems when they break down because of everyday use. If your water heater stops working or your air conditioning unit isn’t running properly, a home warranty can pay for a technician to fix the problem. It can also supply a replacement if the appliance is beyond repair.

» MORE: What is a home warranty?

Homeowners insurance has a broader scope. It covers not only appliances and household systems but also everything else in your house — including all of your belongings and the structure of the building. It covers detached structures too, such as sheds or fences.

Unlike a home warranty, home insurance pays for damage from sudden, unexpected events like fires, windstorms and break-ins. Homeowners insurance policies specifically exclude problems due to wear and tear.

» MORE: What is homeowners insurance?

Many homeowners insurance companies offer an option called equipment breakdown insurance that you can add to your policy. This coverage pays for damage to appliances or household systems from sudden electrical or mechanical failures. Examples could include a power surge that fries your pricey gaming laptop or a pressure rupture that ruins your water heater. However, equipment breakdown insurance generally won’t pay for problems from wear and tear.

» MORE: What is equipment breakdown insurance?

Depending on the plan, home warranties can cover appliances, systems or both. Home insurance generally covers more items and structures because it’s meant to protect the entire house, not just appliances and systems.

Read more on NerdWallet about home warranty coverage and homeowners insurance coverage.

Home warranties and home insurance policies also apply coverage in different situations.

» MORE: 10 home insurance exclusions you need to know

Most home warranty plans require customers to wait 30 days before submitting a claim. This helps prevent fraud by keeping people from signing up to fix a problem that just happened.

Home insurance policies usually take effect more quickly, but they also don't cover pre-existing issues.

A home warranty can cost anywhere from about $240 to more than $1,400 per year, depending on the plan. Homeowners insurance, on the other hand, can be as low as $515 to more than $5,495 annually, according to NerdWallet's analysis. For both types of coverage, the more coverage you choose, the higher the cost.

Home warranties usually come with a service fee that you’ll pay each time a technician comes to your house, even if your warranty doesn't cover the resulting repairs

Most homeowners policies have a deductible, which is the amount you have to pay before your insurer will cover your claim. Fore example, say a storm knocks out your air-conditioning unit. If it needs $2,100 worth of repairs and you have a $1,000 deductible, your policy would cover $1,100 after you pay your deductible.

» CALCULATOR: Estimate your home insurance cost

If you need your home warranty company or insurer to help with a problem, you’ll have to reach out to them directly to submit your claim.

You generally have to pay a portion of a repair with both home warranties and home insurance policies. The major difference is that home warranties usually require you to pay a service fee before a claim is approved (it covers the cost of a technician coming to your house to look at the problem) and home insurance policies only make you pay your deductible if your claim is approved.

Both types of coverage will send out a professional to evaluate the claim — a technician for a home warranty and an adjuster for insurance. Some home warranty companies will let you choose your technician in certain situations, but most insurance adjusters are chosen by the insurance provider.

You might also have to pay more toward a repair than just your service fee or deductible in some scenarios, such as:

• The problem is caused by something that your contract or policy doesn’t cover.

• The cost to repair the damage or replace the item is above your coverage limit.

• You choose to buy a higher-end replacement appliance than what you had before or what the provider is willing to purchase.

» MORE: How to file a home insurance claim

Because there’s not much overlap between homeowners insurance and home warranties, some homeowners choose to have both for the most comprehensive coverage of their appliances and home systems. An equipment breakdown endorsement on your homeowners policy can be a cheaper alternative to a home warranty, covering electrical or mechanical problems. However, it won’t cover simple wear and tear.

If you have a mortgage, your lender probably requires you to have homeowners insurance. But adding equipment breakdown coverage or a home warranty is optional. Before shelling out for either of them, read the terms and conditions carefully to make sure you understand what coverage you will and won’t get.

» MORE: NerdWallet's best home warranties

Below are the pros and cons of each option at a glance.

Home warranty

Home insurance

Optional equipment breakdown coverage on a home insurance policy

» CHECK IT OUT: NerdWallet's best home warranties in California and best home warranties in Texas