What is a home warranty?

How does a service contract work?

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A home warranty pays to repair or replace major home systems and appliances when they break due to regular use or normal wear and tear.

It’s technically a service contract. Like an extended auto warranty, the contract is between you and the company that provides services to fix covered items when they stop working. Most contracts have 12-month terms with the option to renew each year.

Key insights

  • Home warranties cover essential home systems and major appliances, including the electrical system, HVAC system, plumbing system, refrigerator, oven, dishwasher and washer and dryer.
  • Yearly costs fall between $450 and $600, but the most comprehensive coverage is $1,200 or more.
  • You can buy a home warranty at any time, but it’s particularly common to get one during the home purchase process.

How does a home warranty work?

Homeowners tend to get confused about how a home warranty actually works. Jennifer Spinelli, a real estate professional and investment advisor, helped us to clear up some misconceptions:

  1. People often assume their home warranty will cover all issues they have with a particular appliance or system; in reality, it only covers certain types of repairs and replacements.
  2. Some people think that a home warranty company will automatically detect a problem in their home and send a contractor — in fact, you need to contact the company first to get service.
  3. Another common misconception is that the home warranty will pay for 100% of repairs, no matter the cost. However, contracts generally have payout limits for individual repairs, as well as annual caps.

For example, a reviewer in Ohio noticed their upstairs master bathroom had no electricity. They decided to call their warranty company for help. Within a couple of minutes, someone picked up the phone and listened to the problem. The rep gave them a claim number and said they would contact a service provider to fix the issue.

A few hours later, a rep called back, and the reviewer was able to schedule service for the next morning. An electrician quickly identified and replaced a blown GFCI outlet, restoring power to the bathroom. The reviewer just had to pay $45 for the service call.

» MORE: Annual home maintenance checklist

What a home warranty covers

With a home warranty, you pay a service call fee for each claim, and the warranty company pays the cost of repairs or replacement of the covered item up to the limits of the plan.

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 as part of a combo plan. Home warranty providers frequently offer the option to add on coverage for pools, roofs and septic tanks.

Typical coverage

  • HVAC system
  • Electrical system
  • Plumbing
  • Ductwork
  • Garbage disposal
  • Dishwasher
  • Oven, range and cooktop
  • Built-in microwave
  • Washer and dryer
  • Garage door openers
  • Refrigerator

» EXPLORE: What does a home warranty cover?

Limits and exclusions

Each home warranty company offers a different level of coverage, so it’s important to know exactly what's included in the plan you choose — and anything not specifically mentioned as covered in the terms of your contract.

In general, home warranties only cover items that fail due to normal wear and tear, not damage from natural disasters, theft or vandalism (that’s what home insurance is for).

Typical exclusions

  • Preexisting conditions
  • Cosmetic issues
  • Nonmechanical components
  • Anything improperly installed or modified
  • Secondary damage caused by an appliance or system failure

How much a home warranty costs

Depending on your level of coverage, a home warranty costs anywhere from $450 to $1,400. You pay monthly or annually for the plan. You also pay a service call fee each time a technician visits to make a repair — this ranges from $75 to $150, depending on your contract. Having a home warranty can be a helpful way to budget for unexpected home repairs and give you peace of mind as a homeowner.

“Overall, a home warranty can make sense for people who own older homes or who want to protect themselves against unexpected repair costs, but it is important to carefully consider the coverage and costs before purchasing a plan,” said Ryan Zomorodi, co-founder and chief operating officer of Real Estate Skills.

  • Total plan costs: $450 to $1,400 per year
  • Average monthly payment: $40 to $60
  • Service call fee: $75 to $150 per visit

» COMPARE: Cheapest home warranty

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    What to know about filing claims

    The claims process is slightly different for each home warranty company. But, in general, you’ll call the company and explain your problem. It’ll confirm your service call fee (similar to a deductible) and schedule a service appointment. You’ll usually get a call, email or text to let you know when the technician will arrive.

    “Don't delete this important information,” a reviewer in Oklahoma advised other home warranty customers on our site. “This is your confirmation of who is scheduled to come to your residence. ... Just remember that in this digital age of things, some things indeed do fall apart, including calls and emails. If you don't hear from them, don't hesitate to reach out; as a rule of thumb, the squeaky wheel gets the oil.

    “It is best practice to have a printed copy of your contract so that you can reference it if the need arises. Some contractors will try to tell you that based on their assessment, you'll have to pay an out-of-pocket expense that isn't covered by your American Home Shield warranty, ranging from a couple of dollars to upward of thousands in some cases,” the reviewer continued.

    It is best practice to have a printed copy of your contract so that you can reference it if the need arises.”
    — A reviewer from Oklahoma on our site

    After the technician is done, ask to see what was repaired and if any parts were replaced. If something was replaced, ask to look at the packaging to verify the item was new. Make sure the system or appliance works properly before the technician leaves.

    Lastly, tell your company how it went once everything is complete; you could write a review — good or bad. Your honest feedback helps the company improve and gives others insight into the process.

    What's the difference between a home warranty and home insurance?

    People often mix up home warranties and home insurance. Homeowners insurance pays to cover property damage caused by an accident or catastrophe, like a fire or lightning strike. It also covers liability in case someone is injured on your property. A home warranty pays to repair or replace specific items that stop working over the course of normal use.

    Home insurance is usually mandatory if you have a mortgage. On the other hand, a home warranty is always optional. Overall, the differences are in many ways similar to those between car insurance and car warranties.

    What it coversWhen it appliesWhen it’s required
    Home warranty Major systems and home appliances Breakdowns caused by normal wear and tear Always optional
    Home insurance Structural elements of your house, personal property and liability After natural disasters, fire, vandalism and theft Mandatory with mortgage

    How to get a home warranty

    Purchasing a home warranty is a fairly straightforward process, but there are certain steps to follow and factors to consider before deciding on a policy:

    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 included in your new house. Take note of how old they are, when they were last serviced and if any of them already are covered by a warranty.
    2. Shop around for plans: 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 $450 to $600 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 — don’t assume anything.

      A reviewer in Georgia advised others to “be sure of what [you’re] looking for them to provide. There are certain limitations that'll come into play that you may not see when you first review the plan. But once you have a claim, they come up. For example, I didn't know that they only pay $10 towards Freon. Freon cost over $100. That is a very big disappointment.”

    4. Negotiate with the seller when buying: 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.

    » MORE: 10 questions to ask a home warranty company


    How much will a home warranty pay?

    Home warranty providers don’t pay more than the limits listed in your service contract. A company might list these limits on a per-item or per-term basis. These limits typically range from $1,500 to $3,000, depending on the provider. Expect to see language in your contract like: “[Provider] will pay up to $1,500 per contract term for access, diagnosis and repair or replacement of [item].”

    If a repair or replacement ends up costing more than the coverage limit in your policy, the warranty company may offer you a cash payout instead. In this case, you receive funds up to your coverage limit, but you'll need to make up the difference yourself for the cost of having the item repaired or replaced. You may also have to provide documentation to your warranty provider that you used the cash payout to make the repair or replacement.

    Each contract stipulates what components are excluded, the maximum coverage amounts, the waiting period before coverage starts and how long a repair is guaranteed.

    What are exclusions?

    Coverage exclusions are specific components or parts that a plan won’t cover. The agreement may state that you have coverage for broad items, like “refrigerator” or “electrical system,” but that doesn't necessarily mean all parts and components in those items are covered.

    For example, a home warranty may exclude repairs for certain parts of a dishwasher, or it may only cover one of your two refrigerators. It might cover your kitchen refrigerator, but it might not cover nonessential repairs; if a rack or shelf breaks, for example, it won’t affect the essential function of a refrigerator, which is to keep items cold, so the break wouldn’t be covered.

    When is getting a home warranty worth it?

    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. Before purchasing a home warranty, you should take inventory of your household appliances and systems, noting their age, the likelihood of needing repairs or replacement, the costs and your budget.

    » MORE: Is a home warranty worth it?

    When does home warranty coverage begin, and how long does it last?

    Coverage typically kicks in 30 days after you purchase a plan. Most contracts last for a year, with the option to renew after.

    Who are the top home warranty providers?

    The ConsumerAffairs Research Team compared 26 companies and chose our top picks based on available plans, customer reviews, coverage limits and price.

    » COMPARE: Best home warranty companies

    Bottom line

    A home warranty is a service contract. It generally covers important home systems and appliances that need repairs or replacement after breaking down from regular wear and tear.

    Plans provide coverage for specific home systems and appliances — when a covered item breaks down from routine use, you contact the home warranty company, which then sends a qualified service provider to diagnose and repair the problem.

    » BUYING OR SELLING? Buyers vs. sellers home warranty

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. National Home Service Contract Association, “ Understanding Home Service Contract Terminology .” Accessed May 10, 2023.
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