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What is a home warranty?

Understanding how home warranties work and if you need one

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by Jessica Render ConsumerAffairs Research Team
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A home warranty is a service contract that covers repairs and replacements for major home appliances and systems, like refrigerators, dishwashers or HVAC units, that break down from normal wear and tear.

There are a variety of home warranty plans on the market, each with its own level of coverage. Cheaper plans offer basic levels of protection for fewer items, while more expensive plans provide comprehensive coverage that protects a range of systems and appliances, plus extras like garage door openers. Depending on the provider and level of home warranty coverage you choose, annual costs for a home warranty range from $300 to $600, on average.

The basics

  • A home warranty is a service contract for household items that break down from normal wear and tear.
  • A home warranty covers essential home systems and major appliances, including the electrical system, HVAC system, plumbing system, refrigerator, oven, dishwasher and washer and dryer.
  • The average home warranty costs $600 per year for comprehensive coverage. You also pay a service call fee each time a technician visits to make a repair — this is similar to a copayment at a doctor's office.
  • Home warranties do not cover damage from natural disasters, theft or vandalism and are not the same as homeowners insurance.
  • You can buy a home warranty at any time, but they’re particularly common during the home purchase process.

How do home warranties work?

While the two products are fundamentally different, home warranties work similarly to insurance. You pay a monthly premium for coverage, file a claim to use your coverage and pay a deductible — called a service call fee for a home warranty — before coverage kicks in.

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 $60 and $125 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 will communicate 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).

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    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.

    Type of coverageHome warrantyHome insurance
    Physical structure of your home
    Theft of or damage to personal property
    Liability protection if someone gets hurt on your property
    Breakdown of home systems due to wear and tear
    Breakdown of home appliances due to wear and tear
    Home warranty
    Home insurance

    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.

    Home warranty FAQ

    Is a home warranty required?
    No, a home warranty is not required. Home warranties are an optional purchase that can save homeowners hundreds of dollars in repair and replacement costs on important household appliances and systems.
    Can you purchase a home warranty at any time?
    Yes, you can purchase a home warranty at any time, regardless of the age of your systems and appliances.
    How do I know if I have a home warranty?
    If you're still in the process of purchasing your home, ask your real estate agent if a warranty is included. If you've already closed on your home, you can contact your agent or review your closing documents for information about a home warranty.
    How does a home warranty work for the seller?
    For sellers, a home warranty offers buyers a more attractive package and protects them from unexpected repair costs in the first year of ownership. Sellers may choose the warranty company or offer the buyer a warranty allowance so they can shop for their own coverage. Sellers can also purchase a seller's warranty so repair costs are covered during the listing and closing process. For more, read about the differences in home warranties for buyers and sellers.
    How does a home warranty work when buying a house?
    In many cases, a home seller will offer a home warranty to incentivize buyers and reduce the risks of ownership in the first year. Homebuyers may also choose to purchase their own warranty through a chosen provider.
    How soon can you use a home warranty after purchase?
    Most home warranties have a 30-day waiting period before coverage starts. Companies allow you to cancel during this period for a full refund. Some companies waive the waiting period if you purchase a home warranty as part of a real estate transaction or if you are switching providers with no break in coverage.
    Where can you buy a home warranty?
    Many companies offer home warranties in the U.S. Once you have chosen a provider that offers a plan you like, you can usually purchase online or over the phone.

    Bottom line: Should you get a home warranty?

    Home warranties provide financial protection for a relatively affordable price. The coverage saves you money on costly repairs of home appliances and systems that break down and are no longer backed by the manufacturer. Home warranties also take the guesswork out of finding a reputable contractor. Most companies guarantee repairs, so if a repair doesn’t fix the problem the first time, you won’t be stuck paying a service call fee again.

    To decide if a home warranty is worth it, consider which of your systems and appliances are older, out of manufacturer’s warranty and most likely to stop working. How much are the repair and replacement costs? Is paying $25 to $50 per month for a home warranty plan worth it to you to avoid paying those costs 100% out of pocket? If the answer is maybe or yes, we suggest comparing plans and quotes from multiple home warranty companies.

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    by Jessica Render ConsumerAffairs Research Team

    As a member of the ConsumerAffairs research team, Jessica Render is dedicated to providing well-researched, valuable content designed to help consumers make informed purchase decisions they can feel confident making. She holds a degree in journalism from Oral Roberts University.