What Is a Home Warranty and How Does It Work?
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Homeownership has several perks, but it also comes with its fair share of headaches, such as sudden appliance breakdowns and essential system malfunctions. That’s where a home warranty comes in. Whether you’re a first-time homebuyer or a seasoned homeowner, a home warranty can provide peace of mind and alleviate the stress of unexpected repairs. Below, we explain what home warranties are, how they work, how much they cost, what they cover, and what the best home warranty companies are on the market.
What Is a Home Warranty?
A home warranty is a service contract that covers the cost of repairing or replacing your essential home items. It’s not the same as homeowners insurance, which covers damage caused by perils such as natural disasters and theft. Instead, a home warranty provides homeowners with cost coverage and reliable service providers to call when home appliances and systems break down. Unlike home insurance policies, home warranties are not required by mortgage lenders.
Home warranties can especially benefit homeowners with older homes whose appliances and systems are susceptible to breakdowns. They can also help first-time homebuyers who are unfamiliar with the costs of home repairs and maintenance or who have insufficient savings.
What Does a Home Warranty Cover?
A home warranty typically covers major appliances, such as refrigerators, ovens, and washing machines, as well as home systems, including HVAC, electrical, and plumbing. Coverage options vary between companies, but most offer an appliance coverage plan, a systems coverage plan, and a combination plan. Most home warranty plans also offer add-on coverage for items such as swimming pools or well pumps.
With home warranty coverage, if a covered item breaks down unexpectedly, a homeowner can call their home warranty provider for assistance. The service provider will send out a licensed contractor to diagnose and repair or replace the item. Some companies allow you to choose your own contractor.
Here is a more detailed list of some common items that a home warranties cover:
- Built-in microwaves
- Ceiling fans
- Clothes dryers
- Clothes washers
- Dishwashers
- Electrical systems
- Exhaust fans
- Garage-door openers
- Garbage disposals
- Heating, ventilation, and air conditioning (HVAC) systems
- Ovens, ranges, and cooktops
- Plumbing systems and stoppages
- Refrigerators
- Water heaters
What Does a Home Warranty Not Cover?
It’s important to read the fine print of your service contract when purchasing a home warranty to understand what is and is not covered. Here are some items that are typically not covered by a home warranty, otherwise known as exclusions:
- Preexisting conditions
- Items damaged by natural disasters
- Items damaged due to homeowner neglect or misuse
- Items not explicitly listed in the service contract
- Repairs or replacements made without the approval of the home warranty provider
Additionally, home warranty companies may have specific exclusions in their service contracts, such as coverage caps and restrictions on the types of repairs or replacements they’ll perform. For instance, a home warranty company may provide up to $1,500 in coverage for a heating system but only $500 for a refrigerator. Homeowners should carefully review their home warranty contract to understand coverage limits and excluded items or issues.
How Does a Home Warranty Work?
When a covered item breaks down, a homeowner can call their home warranty provider to initiate a service request. At this stage, the service provider will ask for basic information about the issue, such as what item is broken and when it last worked. Some companies also allow homeowners to submit service requests online.
After the company receives your request, it will dispatch a licensed contractor to diagnose the problem and perform necessary repairs. You will be responsible for paying a service fee for each service call, which typically ranges from $50 to $125. You’ll pay this fee directly to the home warranty provider each time you receive service; it is not included in the warranty’s annual or monthly premium.
Once the contractor diagnoses the problem, the service provider will determine if your service contract covers the item. If the item is covered, the home warranty company will pay for the repair or replacement up to the coverage limit. If repair or replacement cost exceeds the coverage limit, you will be responsible for the remaining costs.
Sometimes, the service provider may determine that the item cannot be repaired and must be replaced. In this scenario, the home warranty company will typically provide a replacement item of similar quality and features.
Do I Need a Home Warranty?
Whether or not you need a home warranty depends on your circumstances. A home warranty can provide valuable coverage for unexpected repairs or replacements of your home systems and appliances. However, you should consider the costs, benefits, and downsides of a home warranty before deciding if it’s right for you.
If you own an older home, a home warranty can provide peace of mind by covering unexpected repair or replacement costs. Older homes often have kitchen appliances and systems approaching the end of their life spans, making them more prone to breakdowns. A home warranty is also a good investment if you are a first-time homebuyer and need to know you have a reliable service provider to call if something goes wrong.
On the other hand, if you have a new home or are comfortable handling repairs and replacements yourself, a home warranty may not be necessary. Newer appliances and systems are less likely to break down, and if they do, they may still be covered by the manufacturer’s warranty.
Home Warranty vs. Home Insurance
While a home warranty and home insurance may seem similar, they are designed to protect homeowners in different ways.
Homeowners insurance covers damage caused by named perils such as natural disasters and theft. For example, a home insurance policy would cover damage or losses from a fire, hurricane, or burglary. It can also provide liability coverage if someone is injured on your property. A homeowners insurance policy is typically required by mortgage lenders. Their coverage and premiums depend on your location and the type of coverage you choose.
A home warranty, on the other hand, is a service contract designed to cover repairs and replacement costs for covered items in your home when they break down due to normal wear and tear. It gives a homeowner a reliable service provider to call in case of unexpected breakdowns. Though many people purchase home warranties during a home sale with the help of a real estate agent, they are not typically required by mortgage lenders.
How Much Does a Home Warranty Cost?
The cost of a home warranty depends on the provider and level of coverage. Your location and home size may also impact your rates. To give you an idea of what to expect, we pulled quotes from three top companies for a 2,000-square-foot single-family home in Raleigh, North Carolina:
| Provider | Monthly Premiums |
|---|---|
|
American Home Shield |
$17.49–$27.49 for ShieldSilver, $37.49–$47.49 for ShieldGold, $67.49–$77.49 for ShieldPlatinum |
|
Liberty Home Guard |
$49.99 for Appliance Guard, $54.99 for Systems Guard, $59.99 for Total Home Guard, |
|
Select Home Warranty |
$44.42 for Bronze Care, $44.42 for Gold Care, $44.42 for Platinum Care |
Note that the above prices include discounts that may or may not still be available. For instance, at the time that we pulled the quotes, Select Home Warranty was offering two months free plus $150, and American Home Shield was offering $150 off any plan. Liberty Home Guard was not running any limited-time promotions but did offer a discount for paying annually rather than monthly.
How to Buy a Home Warranty
If you’ve decided that a home warranty is right for you, here are the steps you should take to secure coverage:
- Research providers: Start by researching home warranty providers online. Look for companies with good reputations, comprehensive coverage options, and rates you can afford.
- Compare coverage options: Once you’ve identified a few reputable providers, compare their coverage options to determine which plan best fits your needs. Consider the items and systems you want to cover, coverage limits, and any add-ons or exclusions that may apply.
- Get a quote: Contact your chosen provider to get a quote for the home warranty coverage you want. Ask about any additional fees, such as the service call fee, and any discounts or promotions that are available.
- Review the service contract: Before purchasing a home warranty, review the service contract carefully. Ensure you understand what is and isn’t covered, any exclusions or limitations, and the terms and conditions of the contract.
- Purchase the plan: Once you’ve reviewed the contract and are satisfied with the coverage and pricing, finalize your purchase. Keep a copy of the contract in a safe place and note any important deadlines or requirements, such as the deadline for filing a claim and the waiting period before coverage kicks in.
Our Recommendation
A home warranty can be a worthwhile investment for homeowners who want to protect their home systems and major appliances from unexpected breakdowns. While a home warranty may not be necessary for every homeowner, it can be a good investment for those with older appliances and systems or a limited budget for unexpected repair or replacement costs.
Before purchasing a home warranty, do your research and compare several providers to find the best plan for your needs. Additionally, getting quotes from multiple top home warranty providers, such as American Home Shield and Liberty Home Guard, can help you find the best coverage and pricing. Both of these companies offer comprehensive coverage options, reliable service, and competitive pricing.
Home Warranty FAQ
How long does a warranty last on a house?
Typically, a home warranty lasts for one year from the date of purchase, with the option to renew the plan annually. Some providers may offer longer-term plans, such as two- or three-year contracts. Note that a home warranty is different from the warranty provided by the builder of a new-construction home, though there may be some overlap in coverage.
What is another name for a home warranty?
Another name for a home warranty is a residential service contract. Both terms refer to a service agreement between a homeowner and a service provider that covers the cost of repairing or replacing certain home systems and appliances due to normal wear and tear.
Does a home warranty save you money?
A home warranty can potentially save you money by covering the cost of repairing or replacing covered items in your home due to normal wear and tear. Instead of paying the full cost of a repair or replacement out of pocket, you would pay a service fee—typically $75 to $125 per service call. However, a home warranty may not be a cost-effective option if you have newer appliances and systems that are less likely to break.
Is it worth getting appliance insurance?
Whether it’s worth getting appliance insurance depends on individual circumstances and risk tolerance. When deciding whether to get appliance insurance, consider the age and condition of your appliances, your budget for unexpected repair or replacement costs, and the cost of insurance itself. If your appliances are newer and less likely to break down or are still covered by a manufacturer’s warranty, it may not be necessary to purchase appliance insurance.
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 analysis of customer reviews and interviews with industry experts.
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. 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.