Home Warranty vs. Home Insurance - What's the Difference?

Many Cerritos homeowners are confused about the difference between home warranties and home insurance. They sound similar, both protect your home, and sales agents for both use overlapping language. But they're fundamentally different products that serve different purposes.

Understanding the distinction is critical because assuming your home insurance covers something it doesn't—or vice versa—can leave you with thousands in unexpected out-of-pocket costs.

Let's clarify exactly what each product does, what it costs, and which one (or both) you actually need.

What Is Home Insurance?

Home insurance (also called homeowners insurance) is a property and casualty insurance product that protects you from sudden, unexpected losses to your home and belongings, plus liability for injuries or damage you cause to others.

What Home Insurance Covers

Dwelling Coverage: The structure of your home

• Fire damage

• Wind/hail damage

• Lightning strikes

• Explosion

• Vandalism

• Theft

• Falling objects

• Weight of ice/snow

Personal Property: Your belongings

• Furniture, clothing, electronics

• Appliances (if damaged by covered peril)

• Personal items

• Contents of your home

Liability Coverage: Legal responsibility

• Injuries to others on your property

• Damage you accidentally cause to others' property

• Legal defense costs

• Medical payments to others

Additional Living Expenses: If your home is uninhabitable

• Hotel costs

• Restaurant meals

• Storage fees

• Temporary housing

What Home Insurance Doesn't Cover

Home insurance is designed for sudden, accidental events—not normal wear and tear or maintenance issues:

• Mechanical breakdowns from age/wear

• Appliance failures from normal use

• HVAC system failures

• Plumbing failures (unless sudden)

• Roof leaks from deterioration

• Foundation issues

• Mold (in most cases)

• Pest damage

• Maintenance-related problems

Key principle: If something breaks because it's old or wasn't maintained, home insurance doesn't cover it.

How Much Does Home Insurance Cost?

In Cerritos and Orange County:

• Average: $1,200-2,000/year

• Depends on: Home value, location, coverage limits, deductibles, claims history

Required: Yes, if you have a mortgage. Lenders require home insurance to protect their investment.

What Is a Home Warranty?

A home warranty (also called a home service contract) is a service contract that covers repairs or replacements of home systems and appliances due to normal wear and tear.

Think of it as an extended warranty for your house.

What Home Warranties Cover

Home warranties typically cover mechanical breakdowns of:

Systems:

• HVAC (heating and air conditioning)

• Electrical system

• Plumbing system

• Water heater

• Ductwork

Appliances:

• Refrigerator

• Oven/range

• Dishwasher

• Washer/dryer

• Garbage disposal

• Microwave

Coverage trigger: Normal wear and tear, age-related failure, mechanical breakdown—things that home insurance explicitly doesn't cover.

What Home Warranties Don't Cover

Home warranties are limited and have many exclusions:

• Pre-existing conditions (problems that existed before you bought the warranty)

• Improper installation

• Lack of maintenance

• Known issues at time of purchase

• Building structure (roof, walls, foundation)

• Fire, theft, or other casualty damage

• Cosmetic issues

• Outdoor items (most plans)

• Smart home systems (often excluded)

• Code violations requiring upgrades

Important: Home warranties don't cover sudden, catastrophic events like fires or storms—that's what home insurance is for.

How Much Do Home Warranties Cost?

Annual cost: $400-800/year

Service call fee: $75-125 per visit (you pay this every time a technician comes out, even if nothing is repaired)

Coverage caps: Most plans have limits ($1,500-2,000) on specific items. If your $4,000 HVAC system fails, you might get $2,000, leaving you with $2,000 out-of-pocket.

Required: No. Home warranties are optional.

Home Insurance vs. Home Warranty: Side-by-Side Comparison

Do You Need Both?

Yes, in most cases. They cover different risks.

You MUST have home insurance if you have a mortgage. Even without a mortgage, you should have it to protect your largest asset from catastrophic loss.

You MIGHT benefit from a home warranty if:

• Your home systems and appliances are 5-10+ years old

• You don't have emergency savings for major repairs ($2,000-5,000)

• You want predictable repair costs

• You're not handy and don't have trusted contractors

You probably DON'T need a home warranty if:

• Your appliances and systems are new or under manufacturer warranty

• You have substantial emergency savings

• You have trusted contractors who give you good prices

• You're handy and can do some repairs yourself

When Home Warranties Make Sense

Home warranties can provide value in specific situations:

Situation #1: Buying an Older Home

If you're buying a home with aging appliances and systems (10-15+ years old), a home warranty can provide peace of mind during your first year of ownership.

Common scenario: You buy a home with a 12-year-old HVAC system and 10-year-old appliances. A home warranty might save you thousands if something fails in the first year.

Tip: Sellers often include a 1-year home warranty as part of the purchase agreement. If offered, take it—it's essentially free coverage for your first year.

Situation #2: You Have Old Systems Likely to Fail Soon

If your HVAC is 15 years old and likely to fail within the next 2-3 years, a $600 home warranty that covers a $5,000 HVAC replacement might make financial sense.

Math example:

• Home warranty: $600/year + $100 service fee = $700

• HVAC replacement coverage (with $1,500 cap): You pay $700 + $3,500 out-of-pocket = $4,200 total

• Without warranty: $5,000 out-of-pocket

• Savings: $800

However, if your HVAC doesn't fail, you've spent $700 for nothing.

Situation #3: You Want Predictable Costs

Some homeowners prefer the predictability of a home warranty—paying $50-70/month and $100 per service call—rather than facing unexpected $2,000-5,000 repair bills.

If you're on a tight budget and a surprise $3,000 expense would be financially devastating, a home warranty provides budget predictability.

Situation #4: You Don't Have Trusted Contractors

Home warranties provide pre-vetted contractors, which can be valuable if you're new to an area or don't have established relationships with local service providers.

However: You typically can't choose your contractor—the warranty company assigns one, and quality varies.

When Home Warranties DON'T Make Sense

Home warranties aren't for everyone. Skip them if:

Your Systems and Appliances Are New

If your HVAC is 3 years old and appliances are under 5 years, they're unlikely to fail. You're paying $600/year for coverage you probably won't use, and manufacturer warranties may still apply.

Better strategy: Put that $600/year in a home maintenance fund.

You Have Emergency Savings

If you have $10,000-20,000 in emergency savings, you can self-insure for appliance and system repairs. Why pay $600/year for a warranty when you can handle repairs out-of-pocket?

Math: Over 10 years, that's $6,000 in warranty premiums. Most homes won't have $6,000 in covered repairs during that time.

You Have Trusted, Affordable Contractors

If you have reliable HVAC, plumbing, and appliance repair contractors who give you fair pricing, you don't need a warranty company as a middleman.

Plus: You can choose when and how to repair/replace, rather than being limited to warranty company rules.

You're Handy

If you can diagnose and fix minor issues yourself, you'll rarely need the warranty. Many covered items are simple fixes for someone with basic home repair skills.

Common Home Warranty Complaints

Before buying a home warranty, understand common customer complaints:

Issue #1: Coverage Denials

Many claims are denied for reasons like:

• "Pre-existing condition"

• "Improper maintenance"

• "Not covered under your plan"

• "Requires upgrade to meet code"

Issue #2: Service Call Fees Add Up

At $75-125 per visit, if you have 4-5 issues in a year, you're paying $300-625 in service fees on top of your annual premium. At that point, you might be better off just hiring contractors directly.

Issue #3: Coverage Caps Are Low

Many plans cap coverage at $1,500-2,000 per item. If your $4,000 AC unit fails, you're still paying $2,000-2,500 out-of-pocket.

Issue #4: You Can't Choose Your Contractor

The warranty company assigns a contractor from their network. If you're unhappy with quality or service, your options are limited.

Issue #5: Slow Response Times

During peak seasons (summer for AC, winter for heating), warranty companies may have 1-2 week wait times for service appointments.

Real-World Example: The Math of Home Warranties

Let's run a real scenario:

Scenario: You buy a $600/year home warranty with $100 service fees. Over 3 years:

Year 1:

• Dishwasher fails (8 years old)

• Service fee: $100

• Repair covered: $400

• Your cost: $100 service + $600 annual = $700

• You saved: $400 - $700 = -$300 (lost money)

Year 2:

• Water heater fails (12 years old)

• Service fee: $100

• Replacement covered (with $1,500 cap): $1,500 (actual cost $2,200)

• Your cost: $100 service + $700 out-of-pocket + $600 annual = $1,400

• You saved: $2,200 - $1,400 = $800

Year 3:

• No issues

• Your cost: $600 annual

• You saved: $0

Three-year total:

• You paid: $700 + $1,400 + $600 = $2,700

• Without warranty: $400 + $2,200 = $2,600

• Result: You paid $100 MORE with the warranty

The math doesn't always favor home warranties. It depends on what breaks, when, and coverage limits.

The Better Alternative: Home Maintenance Fund

For many homeowners, a better strategy than buying a home warranty is building a home maintenance fund:

How it works:

1. Set aside $50-100/month in a dedicated savings account

2. After 1-2 years, you have $600-2,400 saved

3. When something breaks, you pay for repairs from this fund

4. If nothing breaks, the money stays in your account (unlike warranty premiums)

5. You choose your own contractors and repair/replace on your timeline

Benefits over home warranty:

• You keep the money if nothing breaks

• No service call fees

• No coverage caps

• Choose your own contractors

• Flexibility in repair vs. replace decisions

Recommended fund target: $5,000-10,000 (enough to cover most major home repairs)

When to Review Your Home Insurance

While we're talking about protecting your home, make sure your home insurance is adequate:

Review annually if:

• You made significant renovations

• You acquired expensive items

• Home values in your area increased significantly

• You haven't reviewed coverage in 2+ years

Common gaps we see:

• Insured for market value instead of replacement cost

• Inadequate personal property limits

• No coverage for home office equipment

• Liability limits too low ($100K-300K when they have $500K+ in assets)

Want a free home insurance review? Call us at (562) 402-1737.

Making the Right Choice for Your Situation

So, home insurance or home warranty? Let's summarize:

You NEED Home Insurance

Always. It's required with a mortgage and protects you from catastrophic loss. This is non-negotiable.

Cost: $1,200-2,000/year typically Value: Protects your largest asset from devastating financial loss

Contact us for home insurance quotes: (562) 402-1737

You MIGHT Benefit from a Home Warranty If:

• Home systems/appliances are 8-15 years old

• You have no emergency fund ($5,000-10,000)

• You want budget predictability

• You're new to homeownership and don't have contractor relationships

Cost: $400-800/year + $75-125 per visit Value: Predictable repair costs for mechanical breakdowns

You DON'T Need a Home Warranty If:

• Systems/appliances are less than 5 years old

• You have $10,000+ emergency fund

• You have trusted contractors

• You're comfortable with self-insurance

Better alternative: Build a $5,000-10,000 home maintenance fund

Take Action

Whether you choose a home warranty or not, make sure you have proper home insurance coverage. That's the foundational protection every homeowner needs.

Ready to review your home insurance?

At Pinoy General Insurance, we help Cerritos homeowners ensure they have the right coverage at the right price. We'll:

• Review your current coverage for gaps

• Confirm your dwelling coverage reflects true replacement cost

• Identify discount opportunities

• Compare quotes from 5-10 A-rated carriers

• Provide recommendations based on your specific situation

Contact us today:

• Call: (562) 402-1737

• Email: info@pinoygeneralinsurance.com

• Visit: 17304 Norwalk Blvd, Cerritos, CA 90703

• Web: pinoygeneralinsurance.com

Free, no-obligation home insurance reviews for Cerritos residents.

Protect your home properly. Start with insurance, decide on warranty based on your situation.

Frequently Asked Questions

Can a home warranty replace home insurance?

Absolutely not. Home insurance is required with a mortgage and covers catastrophic events like fires and storms. A home warranty only covers mechanical failures. You need home insurance regardless of whether you have a warranty.

Do I need a home warranty if my appliances are under manufacturer warranty?

No. Manufacturer warranties cover defects and mechanical failures during their coverage period. Wait until manufacturer warranties expire before considering a home warranty.

Can I choose my own contractor with a home warranty?

Usually no. Most home warranty companies require you to use contractors from their network. This is a common complaint among warranty holders.

Are home warranties worth it?

Depends on your situation. For homeowners with old systems, no emergency fund, and no contractor relationships, they can provide value. For homeowners with savings and newer systems, building a maintenance fund is often smarter.

Will my home insurance cover my broken dishwasher?

Only if it broke due to a covered peril (fire, lightning, vandalism, etc.). If it simply stopped working due to age, home insurance won't cover it—that's what home warranties cover.

Can I cancel my home warranty if I don't use it?

Most home warranty contracts are annual and non-refundable. If you cancel mid-term, you typically won't get a refund for unused months.

What's the best home warranty company?

Customer satisfaction varies widely. Research companies carefully, read reviews, understand coverage limits and exclusions before purchasing. Common names include American Home Shield, Choice Home Warranty, and First American.

Last Updated: January 2026