A home warranty and home insurance sound similar but pay for different things. Home insurance pays when something sudden happens to the house, such as a fire, a storm or a burst pipe. A home warranty pays when a furnace, water heater or appliance simply wears out. This page explains what third-party warranties cover and exclude, how they compare with the mandatory warranties on new homes, and when one is worth buying.
Short answer
A home warranty can be useful for buyers of older homes whose systems are near the end of their lives, but only if the plan’s coverage caps are realistic and its exclusions don’t rule out the likely failures. Setting aside a repair fund gives similar protection with no claim restrictions.
New home warranty vs third-party home warranty
| Type | Who provides it | Coverage period | Required? |
|---|---|---|---|
| New home statutory warranty | Builder, backed by a provincial program | 1 to 10 years depending on the province and defect | Mandatory for new homes in several provinces, including Ontario, BC and Alberta |
| Third-party home warranty or protection plan | Private company | Usually a 12-month or month-to-month term | Optional |
Provincial new home warranties
| Province | Program | Coverage |
|---|---|---|
| Ontario | Tarion | 1 year work and materials, 2 years water penetration and electrical, plumbing and heating systems, 7 years major structural defects |
| British Columbia | 2-5-10 warranty (Homeowner Protection Act) | 2 years materials and labour, 5 years building envelope, 10 years structural |
| Alberta | New Home Buyer Protection Act | 1 year labour and materials, 2 years delivery and distribution systems, 5 years building envelope, 10 years major structural components |
| Other provinces | Varies: some have provincial programs, some rely on builder warranties | Varies |
A new home with a statutory warranty is already covered for major structural and mechanical defects for several years, so a third-party plan adds little during that period.
What third-party home warranties typically cover
Canadian protection plans, such as those sold by Enercare and Reliance Home Comfort, are built around heating, cooling, plumbing and electrical systems, with separate plans or bundles for each. What any one plan covers is set by its own terms, so the useful questions are these:
| Coverage category | What to check in the plan |
|---|---|
| Heating and cooling (furnace, A/C, heat pump) | Whether replacement is covered or only repairs, and any age or pre-existing condition limits |
| Plumbing and drains | Which pipes and fixtures are included, and whether drain clogs or outdoor lines are |
| Electrical | Whether code upgrades needed during a repair are covered |
| Water heater | Whether it is in the plan, and whether it is owned or rented |
| Appliances | Whether they are included at all |
| Roof | Storm damage to a roof is an insurance claim; check whether the plan covers roofs at all |
Home warranty vs home insurance
| Feature | Home warranty | Home insurance |
|---|---|---|
| Pays for | Systems and appliances breaking down | Sudden events (fire, theft, storm, burst pipe) |
| Trigger | Normal wear and tear | Sudden, accidental damage |
| Examples | Furnace failure, water heater, appliances | Fire damage, storm damage to the roof, theft |
| Cost | Set by the plan, often monthly | Varies by province; see average home insurance costs |
| Required by a mortgage lender? | No | Yes |
A roof shows the split clearly. Storm damage to a roof is an insurance claim. A roof that has simply reached the end of its life is neither an insurance claim nor, unless a plan says otherwise, a warranty claim: it is a capital expense to budget for over time.
The alternative: a self-funded repair reserve
Instead of paying plan fees, some owners put the same amount into a savings account:
| Approach | Trade-off |
|---|---|
| Home warranty or protection plan | Defined coverage, with caps and exclusions |
| Self-funded repair reserve | No restrictions or claim process; the money stays yours if nothing breaks |
As an illustration, setting aside $700 a year builds a reserve of $3,500 after five years and $4,900 after seven, before any interest. Whether that covers a failure depends on the repair; getting a quote for replacing the oldest system in the house shows what the reserve needs to reach.
When a home warranty makes more sense
| Scenario | Value of a warranty |
|---|---|
| Buying an older home with ageing systems you didn’t choose | Higher: reliability is unknown |
| The seller includes a free one-year warranty | Take it; there is no cost |
| First-time buyer with no repair fund yet | Higher: covers the first year while savings build |
| Several ageing systems at once (heating, appliances, water heater) | Higher: several near-term failure risks |
| Rental property where predictable repair costs matter | Moderate |
When a home warranty is lower value
| Scenario | Value of a warranty |
|---|---|
| New home already covered by a statutory builder warranty | Low: the coverage overlaps |
| Home under 10 years old with systems in good condition | Low: failure risk is small |
| An adequate repair reserve already exists | Low: you are effectively self-insured |
| The exclusions rule out the risks you are worried about | Negligible |
What to check before buying a home warranty
| Feature | What to look for |
|---|---|
| Coverage cap per item | Whether the cap would pay for a full replacement, not just a repair |
| Pre-existing condition clause | A broad clause can disqualify almost any claim on an older system |
| Service call fee | Whether each visit carries a fee or deductible |
| Contractor choice | Some plans require their own contractors, and quality varies |
| Renewal terms | Whether the company can raise the price or drop coverage at renewal |
| Cancellation policy | Whether you get a refund if you sell the home |
Bottom line
For new homes with statutory builder warranties, a third-party plan adds little. For older resale homes with ageing systems and no repair fund, a home warranty can provide useful protection, provided the exclusions and caps fit realistic repair costs. Neither replaces home insurance, which a lender requires and which covers the sudden, large losses a warranty never will; the best home insurance companies in Canada guide compares insurers.