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Jump to: What Is a Home Warranty? | How Do Home Warranties Work? | What Do Home Warranties Cover? | What Don’t Home Warranties Cover? | Do I Need a Home Warranty? | Benefits and Drawbacks | Cost | Home Warranties vs. Homeowners Insurance | Our Recommendation | FAQ
Home warranties can help fill the gaps left by homeowners insurance. Your home insurance policy may pay for a new air conditioner if a tree falls on your outdoor unit, but it’s no help if your system breaks down due to normal wear and tear. That’s where home warranties come in.
The best home warranties cover not only home systems, such as HVAC equipment, but also major appliances. When a covered item breaks down, the homeowner is only responsible for a predetermined service fee. However, home warranties can be more complicated than they first appear. To determine whether one makes sense for you, you first need to understand how home warranties work, including what they cover and how much they cost.
What Is a Home Warranty?
A home warranty is a service contract between a homeowner and the home warranty provider. The homeowner agrees to pay an annual or monthly premium, and in exchange, the service provider agrees to cover the replacement or repair costs of certain home systems or appliances. Home warranties can function as extended warranties for items usually covered by a manufacturer’s warranty.
Homeowners can purchase a home warranty at any time, regardless of how long they have lived in the home. Most home warranties are purchased by the buyer or seller during a real estate transaction. Home sellers can use a home warranty to attract or reassure potential home buyers, or the buyers may purchase the home warranty themselves. Real estate agents will sometimes negotiate this for their clients.
How Do Home Warranties Work?
Home warranties are fairly simple in how they work, but it’s important to understand the terms of your policy. Homeowners pay a monthly or annual premium to ensure coverage, plus a flat service fee when a covered item requires repair.
Here is the basic claims process:
- A covered item breaks down. Some home warranties only cover appliances, whereas others cover major home systems. Top-tier policies typically cover both, but the exact items vary by company.
- The homeowner files a claim. Most companies allow customers to file their claims by submitting an online form. Alternatively, you can call the customer service number for your home warranty policy. You will be asked to provide details about the item in question, including when the problem started.
- A home service appointment is scheduled. Most home warranty companies will assign a technician to your claim and make an appointment on your behalf. If no technicians from the company’s network are available immediately, some companies may allow you to make your own arrangements. A few, such as AFC Home Club, make it easy for customers to choose their technicians from the start.
- The homeowner pays a service fee. The timing and method for this step can vary. Some companies allow homeowners to prepay their service call fee online, or you might pay the technician upon arrival.
- The technician submits a diagnosis. The service technician will diagnose the problem and communicate it to the home warranty company. The company will then decide whether your policy covers that issue and approve or deny the action recommended by the technician.
- The home warranty company pays the bill. Once the company has approved the repair or replacement, the technician will provide any necessary services. Typically, the technician will submit the final bill to the home warranty company for payment. Sometimes, the homeowner may cover the costs up-front and receive reimbursement later.
Some home warranties cap their coverage for certain items or categories. Read the terms of your policy carefully to identify any limitations or restrictions on the type, number, or cost of repairs covered by the provider.
What Do Home Warranties Cover?
Home warranties vary in what they cover. Most companies offer at least two or three different plans so homeowners can achieve their ideal balance of cost and coverage. You can further customize your policy with add-on coverages. Here is what you can expect from different types of plans:
- Home systems coverage: This type of policy typically covers the heating, air conditioning, ductwork, and water heater, as well as plumbing and electrical systems. Depending on the company, a home system or appliance policy may cover garage-door openers and ceiling or exhaust fans.
- Major appliances coverage: This type of policy offers insurance for home appliances. Commonly covered appliances include washers, dryers, and kitchen appliances, such as refrigerators, ovens, ranges, cooktops, dishwashers, garbage disposals, and built-in microwaves. Most companies require add-on coverage for an additional refrigerator or stand-alone freezer. Ice makers may or may not be covered.
- Comprehensive coverage: A total or comprehensive plan combines home systems and appliance coverage. This policy may also cover a few additional items, such as plumbing stoppages and roof-leak repair.
- Add-on coverage: Add-ons vary by company. Most companies provide optional swimming pool, well pump, septic system, roof-leak repair, stand-alone freezer, and electronics coverage.
When comparing the home warranty coverage offered by different companies, note any coverage caps or limits. This is especially important if you need your home warranty to cover high-end appliances, which cost more to replace.
What Don’t Home Warranties Cover?
Every home warranty is subject to exclusions and limits. The exact terms vary by company but will be spelled out in the fine print of your contract. To give you an idea of what to expect, here are a few things that most home warranties do not cover:
- Structural elements: Windows, doors, solar panels, and other structural elements are typically covered by home insurance and therefore excluded from home warranty policies.
- Preexisting conditions: Some companies make exceptions for unknown and undetectable issues, while others exclude all preexisting conditions.
- Duplicate appliances: You will likely need to purchase add-on coverage for any extra appliances, such as an additional refrigerator or freezer in your garage.
- Improper installation: Most companies will not cover a unit that was not installed properly.
- Modifications: If a system or appliance has been changed or modified, your home warranty provider may choose not to cover it.
- Misuse of an appliance: Anything beyond standard residential use may lead to claim denial.
- Improper maintenance: Home warranty companies may limit or deny coverage if you cannot provide maintenance records for an item.
- Damage caused by pests: Damage caused by mice, rats, termites, or other pests is not considered normal wear and tear.
- Cosmetic defects: Dents, chips, scratches, and other issues that do not affect the performance of an appliance are not covered.
In addition to these common exclusions, your warranty may cap payouts for certain items, limit the number of covered repairs, or offer specific items only as an add-on. For instance, while most companies include air conditioners on their list of covered items, First American Home Warranty offers this coverage as an add-on to its Starter Plan.
Do I Need a Home Warranty?
Not all homeowners need a home warranty, but many can benefit from one. When you buy a house, the previous owner may provide insufficient or unreliable information about the appliances, plumbing, HVAC units, and electrical system. A home inspection provides some reassurance—but what if the inspector misses something? A home warranty covering unknown preexisting conditions can provide peace of mind.
A home warranty can be especially useful if you are moving into an older home or have no money set aside for home repairs. Even if your home and everything in it is relatively new, you might appreciate the financial safety net offered by a comprehensive home warranty with high coverage limits. Additionally, most home warranties will directly connect you with a vetted technician, saving you the inconvenience of finding your own contractor when a repair is needed.
Benefits and Drawbacks of Home Warranties
Although home warranties offer several benefits, they also come with some drawbacks. Before making a final decision, take a moment to weigh the pros and cons.
Here are a few benefits:
- Convenience: When you file a claim, the home warranty company will help you find a qualified service technician. This is typically a much more convenient process than sifting through the options to hire a professional on your own.
- Security: A home warranty can be a financial and mental health investment. Knowing you have one in place can alleviate worry about how you would pay for an unexpected plumbing issue or appliance breakdown. When repairs become necessary, the best home warranty companies offer workmanship guarantees that last 30 to 60 days or, sometimes, the policy’s life.
- Value: A home warranty can offer exceptional value even when factoring in the annual premium and service call fees. Appliance repair or replacement costs often range from several hundred dollars to more than a thousand.
Here are a few drawbacks:
- Exclusions: When purchasing a home warranty, keep in mind that terms and conditions apply. If you don’t read through your contract carefully, you may find out later that your home warranty doesn’t cover everything you thought it did. For instance, your home warranty may exclude items still covered by a manufacturer’s warranty.
- Uncertain payoff: There is always a possibility that your home warranty will not pay off. You might purchase a one-year policy only to never need it, or you may pay more for the premium than you would have spent on repairs.
- Limited control: If you file a claim through your home warranty, your options will be limited. You may not be able to choose your service technician, nor will you get to choose whether an item is replaced or merely repaired.
How Much Do Home Warranties Cost?
Home warranties include two costs: the monthly or annual premium and the service call fee. Most companies offer a discount for homeowners who pay their entire premium up-front instead of opting for a monthly payment plan. Some, including Select Home Warranty, also offer a discount on multi-year coverage.
Home warranty companies generally offer appliance- and systems-only plans plus one or two total coverage plans. The more items a plan covers, the higher its premium will be.
Here are potential cost ranges for different types of home warranty plans, based on quotes we received from five home warranty companies for a 2,000-square-foot, single-family home in Albuquerque, New Mexico:
- Appliances only: $45 to $50
- Systems only: $40 to $60
- Total coverage: $50 to $110
Add-on coverages are also available. Although these cost extra, they increase the value of your home warranty by covering things that would otherwise be excluded, such as a pool, well pump, or septic system.
Depending on the company and location, service fees can range from $60 to $125. Typically the service fee remains the same regardless of which tier you choose. American Home Shield allows customers to choose from three service call fees, which will affect the monthly premiums. A lower service call fee means a higher premium. Other companies list a range because their fee varies by location.
Home Warranties vs. Homeowners Insurance
Home warranties resemble home insurance in that they reduce the homeowner’s out-of-pocket costs when a problem arises in their home. The service fee set by a home warranty is even similar to the deductible outlined in a home insurance policy. The main difference lies in what they cover. A home warranty covers system and appliance breakdowns resulting from wear and tear, whereas homeowners insurance provides monetary compensation for damages from unexpected events, such as theft or natural disaster.
Your home insurance will pay for appliances and systems damaged by a covered event, but it also covers your home’s structure and any personal belongings inside it. Plus, home insurance covers more than just property damage. It also includes liability and medical payments coverage for accidents on your property and covers additional living expenses if you are displaced from your home.
Our Recommendation
Whether a home warranty is worth it depends on your budget and tolerance for inconvenience. With various companies, policies, and add-ons, most homeowners can find a policy worth the price.
However, your home warranty may look like a poor investment retrospectively if you go the entire term without filing a claim. You may also find that you have less control over when or how your items are serviced. If you have substantial savings for repairs or replacements, you may not feel a home warranty is worth it. However, if you couldn’t afford these services out-of-pocket and have home systems and appliances with expired manufacturer’s warranties, you may find the added monthly or annual cost is worth it for peace of mind.
A home warranty is most likely to pay off if you purchase an older home or a home with older appliances. Even with a new home, a home warranty can provide financial security, especially for first-time homeowners. It can also eliminate the hassle of finding a technician on your own.
Frequently Asked Questions About Home Warranties
What is the main purpose of a home warranty?
The main purpose of a home warranty is to cover major home appliances and systems, such as plumbing systems and electrical wiring. If any issues arise with a covered item, you simply pay a predetermined service call fee instead of covering the entire cost of repair or replacement. The home warranty then covers the rest of the cost up to any limits outlined in your policy.
How long does a warranty last on a house?
Most home warranties last for one year. However, homeowners typically have the option to renew their warranty annually. Some companies offer multiyear contracts at a discounted rate.
Why would a seller offer a home warranty?
A seller might offer a home warranty as an incentive for buyers. Including a home warranty in the purchase reassures buyers that if something breaks within that first year, they will not have to pay for it out of pocket. This can be especially helpful if the home has several systems or appliances that might be nearing the end of their life spans.
How We Chose the Top Home Warranty Providers
Our team reviewed and researched dozens of home warranty providers, thoroughly analyzed sample agreements, and identified customer pain points based on customer-review analysis and interviews with industry experts. Our in-depth methodology guides our review process to provide transparent information about the companies we review.
During this process, we determined that the most critical aspects of a home warranty company include available service plans and add-ons, depth of coverage, plan cost, industry reputation, customer support infrastructure, and additional features. We also focused on the ability to choose your own contractor; upgrade your coverage package; transfer your plan to another owner; and cover roof leaks, high-end appliance brands, ceiling and exhaust fans, and faucets and fixtures.
Our research supported that plan coverage should carry the most weight, with customer support as the second-most important factor. Industry reputation, plan availability, and additional features were rated equally. Therefore, we determined that price range, while worth considering, should not be the primary basis for choosing a home warranty provider for your home’s needs.
