Home warranty vs homeowners insurance: what each actually covers

A home warranty and a homeowners insurance policy pay for different kinds of loss. Homeowners insurance pays when something sudden and accidental damages the house, a fire or a storm, and it also pays if someone is hurt on the property and sues. A home warranty is a service contract that pays toward repairing or replacing a specific list of systems and appliances, a water heater, an HVAC system, a garbage disposal, when they fail from age or ordinary use. South Carolina's insurance code treats the two as separate products with separate rules, and a lender that requires one almost never requires the other.

What is the difference between a home warranty and homeowners insurance?

South Carolina's Title 38, the insurance title, defines a service contract in Chapter 78 as an agreement sold for its own separate charge to repair, replace or maintain property when it fails from a defect in materials or workmanship, or from normal wear and tear. The product most people call a home warranty fits that definition: a buyer or a seller pays for it on its own, for a set term, to cover a named list of systems and appliances. The same chapter defines a "warranty" narrowly, as a promise a manufacturer or seller includes at no extra charge and bundles into the sale, like the one a brand-new water heater already carries. A home warranty bought a year into owning a house is not that kind of warranty under South Carolina law. It is a service contract, which is why the chapter's consumer protections, not the insurance code's, apply to it.

What does homeowners insurance cover that a home warranty does not?

Liability. The South Carolina Department of Insurance's homeowners FAQ page describes a standard policy's Section II as personal liability, covering bodily injury and property damage to other people, plus medical payments to others, and says no deductible applies to that part of the policy. A home warranty has no equivalent section. It pays only toward whatever systems and appliances its contract lists, so a visitor hurt on a loose porch step is a homeowners insurance claim, never a home warranty one.

The two also start from opposite assumptions about what caused the loss. The Department's homeowners insurance page describes the policy as protection against financial loss from storms, fire, theft and the other perils named in it, all sudden events. A home warranty assumes the opposite kind of loss: a furnace that simply wears out after years of running, which a standard homeowners policy excludes as normal wear.

Is a home warranty regulated the same way homeowners insurance is in South Carolina?

No. A South Carolina homeowners insurer is licensed and rate-regulated under the insurance code before it can sell a policy here. A home warranty provider only registers with the Department of Insurance and pays an annual fee, and Chapter 78 exempts the provider itself from the licensing the rest of the insurance code requires. The provider still has to put something in writing to back its promises: either a reimbursement insurance policy from a licensed insurer, or its own reserve, and the contract has to name which one it is under Chapter 78's disclosure rules. That is a lighter oversight than an insurer carries, which is worth knowing before assuming the two products answer to the same kind of regulator.

Can a home warranty buyer cancel and get a refund?

Chapter 78 gives a buyer a short window to change their mind at no cost. The law lets a buyer cancel a home warranty for a full refund within 20 days of the date the contract was mailed, or within 10 days if it was handed over at the time of sale, as long as no claim has been filed yet. A refund the provider owes and does not pay within 45 days starts drawing a monthly penalty under the same chapter. If the provider wants to cancel on the buyer instead, outside of a missed payment, it owes 15 days' written notice first.

Does a mortgage lender require a home warranty?

A mortgage lender requires a bound homeowners insurance policy before closing on every loan, because the loan is secured by the house and the lender needs it insured against loss. A lender does not require a home warranty on any loan type. Many Upstate sellers include one for the first year after closing, as a selling point on a house with an older systems list, and a buyer closing on a newer house can choose to buy one too. Either way, carrying one, dropping one, or letting one lapse after its first term is the owner's decision, not the lender's.

What happens if a home warranty company won't pay a claim?

A home warranty buyer starts with less built-in protection than an insurance policyholder does. The Federal Trade Commission's consumer alert on home warranties warns that a plan can turn out to duplicate coverage a buyer already has, cover only part of an appliance, or make repairs hard to get when something actually breaks, and it tells buyers to weigh the claims process and the company's own reputation before signing, not after. In South Carolina, a dispute over an unpaid claim goes to the Department of Insurance the same way an unpaid homeowners claim does, since Chapter 78 requires every contract to print the Department's contact information on its face. The office handling the complaint is the same one either way. What stands behind the promise is not: an insurer answers to the state's licensing and solvency rules for the business of insurance, while a home warranty provider answers for whatever its own contract says it lined up, a reimbursement insurer or its own reserve, named in that same contract.

Where this fits in an Upstate purchase

Owning one of these products does not replace needing the other. A house still needs a bound homeowners policy at the closing table whether or not a seller is also including a home warranty, and a buyer deciding whether to renew that warranty past its first term should read what it actually lists before paying for another year, not assume it covers whatever breaks next. During the inspection period, we get the seller's home warranty paperwork, when there is one, in front of the buyer early enough to ask those questions before closing instead of after. Our vendor list has the insurance contact we refer buyers and sellers to; the home warranty decision is the buyer's own call to make.