What is a home warranty?

A home warranty is also known as a residential service contract. The contract covers the repair or replacement of certain home systems, such as heating, cooling, plumbing and electrical, and home appliances, like water heaters and stoves.

A home warranty is a voluntary purchase. Many people get a plan when buying a new home to protect against the cost of potential repairs or replacements, but you can obtain one at any point during homeownership.

Home warranty basics

• A home warranty is a service contract for household items that break down from normal wear and tear.
• Plans cover essential home systems and major appliances, including the electrical system, HVAC system, plumbing system, refrigerator, oven, dishwasher and washer and dryer.
• Home warranties do not cover damage from natural disasters, theft or vandalism and are not the same as home insurance.
• The average cost of a home warranty is $546 to $1,425 per year for comprehensive coverage. You also pay a service call fee each time a technician visits to make a repair — this ranges from $55 to $150, depending on your contract.
• You can buy a home warranty at any time, but it’s particularly common to get one during the home purchase process.

How do home warranties work?

With a home warranty, you pay monthly or annually for coverage. When a covered system breaks down, you file a claim, and the company sends a qualified contractor to your home. You pay a service call fee — and as long as the repair or replacement is covered, the home warranty company covers the cost.

Homeowners sign a service contract — typically for one year — with a home warranty company for the level of coverage they want and follow the process below to have a covered appliance or system repaired or replaced when it breaks down from normal use.

1. File a claim: Most companies let you file a claim 24/7, either online or over the phone.
2. Pay a service fee: You pay a service call fee — typically between $55 and $150 per visit — for the home warranty company to send a licensed contractor to your home to diagnose the problem.
3. Schedule a contractor visit: The assigned technician comes to your home to examine the malfunctioning appliance or system.
4. Repair or replace the item: The technician communicates with the home warranty company to confirm coverage for the breakdown. If the claim is approved, the technician repairs or replaces the system or appliance.
5. Pay nothing further: The home warranty company covers the cost of the repair or replacement (as long as it doesn’t exceed the maximum coverage amount).

What a home warranty covers

A home warranty covers repair or replacement of specific appliances and systems in your home when they break down from normal wear and tear. Most home warranty plans cover standard appliances in a home, such as washers, dryers, dishwashers, refrigerators and ranges; essential household systems, like HVAC, plumbing and electrical; or both appliances and systems in a combo plan. Home warranty providers frequently offer the option to add on coverage for pools, roofs and septic tanks.

Each home warranty company offers different levels of coverage, so it’s important to know exactly what's included in the plan you choose. You should also read the contract carefully so you understand per-item and annual payout limits, excluded parts and circumstances when coverage doesn’t apply (e.g., a breakdown due to a preexisting condition).

How to get a home warranty

Purchasing a home warranty contract is a fairly straightforward process, but there are certain steps you’ll want to follow and factors to consider before deciding on a policy.

If you’re in a house with newer appliances and systems, chances are many of them are still covered under the original manufacturer's warranty.

1. Assess your needs: If you’re thinking about getting a home warranty for a home you’re purchasing, start by making an inventory of all the major appliances and home systems that are included in your new house. Take note of how old they are, when they were last serviced and if any of them already come with a warranty. A home warranty is only worth it if there’s a reasonable likelihood you’ll need to repair or replace something that’s not covered by an original warranty within the next year.
2. Shop around for plans: As with any insurance policy you buy, you should get quotes from at least two or three home warranty providers. Each will be able to offer something different, but your typical home warranty cost will fall into the range of $300 to $800 per year. If you have specific needs for your home, like coverage for a pool, septic tank or sump pump, make sure the provider includes these add-ons in your estimate.
3. Examine your plan carefully: It’s important to read the fine print on any contract, but this is especially true for home warranties. Make sure everything you think is covered is in fact covered — don’t assume anything. For example, a home warranty may exclude repairs for certain parts of a dishwasher, or it may only cover one of your two refrigerators. Each plan stipulates key things like what components are excluded, the maximum coverage amounts, the waiting period before coverage starts and how long a repair is guaranteed.
4. Negotiate with the seller if buying a home: If you’re in a buyer’s market, you may be able to get the seller to cover the cost of your warranty as part of your closing negotiations. Sometimes the seller will even market their home to include a free, yearlong home warranty plan to entice buyers. Note, however, that the seller is under no obligation to provide one and will only do so if they feel it’s worth it.

Home warranty vs. homeowners insurance

Home warranties provide coverage for repair and replacement of systems and appliances that stop working in the course of regular use, while homeowners insurance covers damage to or loss of these items as a result of events including lightning, fire and theft.

Do I need both home insurance and a home warranty?

Home warranties are optional for homeowners, while homeowners insurance is generally required if the homeowner has a mortgage. Having both homeowners insurance and a home warranty gives you a greater degree of financial security and coverage for your home. A home warranty is especially useful if you have older appliances or systems that are no longer covered by the manufacturer or if you don’t want to pay 100% out of pocket for a repair when something malfunctions.

Bottom line: Should I get a home warranty?

Home warranties are not for everyone, so be wary of sales associates or real estate agents who try to push a policy on you by claiming that all buyers need one. That said, if you have legitimate concerns about the longevity of essential home systems and appliances, a home warranty could end up saving you big bucks down the road.

For example, if you’re buying a house with older appliances, a home warranty could be precisely what you need to protect yourself against future repair costs. However, if you’re in a house with newer appliances and systems, chances are many of them are still covered under the original manufacturer warranty. In that case, don’t purchase coverage you don’t need.