What Is a Home Warranty?


Settling into your dream home should be a time of joy, not stress over unexpected appliance or system failures. Whether it’s an air conditioner failing in the heat of summer or a dishwasher flooding your kitchen, these are real challenges homeowners often face.

mother and daughter doing laundry

A home warranty acts as a safeguard against the financial and emotional strain of such breakdowns, covering the repair or replacement costs of major systems and appliances due to wear and tear. More than just a policy, a home warranty serves as a protective friend for your home, preventing unexpected issues from draining your savings.

This guide explores the essentials of home warranties, including coverage details and the benefits of securing one. Whether you’re moving into your first home or aiming to protect your existing one, understanding the importance of a home warranty is key to ensuring peace of mind and financial stability.

How do home warranties work?

Home warranty plans provide a form of protection for homeowners by covering the costs associated with repairing or replacing major appliances and systems within your home, such as heating, cooling, electrical, and plumbing systems, as well as refrigerators, ovens, and washers. These plans are especially beneficial for mitigating unexpected expenses that arise from normal wear and tear.

When you purchase a home warranty, you have the flexibility to tailor your plan to fit your specific needs. This means you can choose to cover just your major appliances, systems, or a combination of both, depending on what you deem most critical to your home’s functionality and comfort.

The cost of your home warranty, known as the premium, will vary based on the scope of coverage you select. Plans that offer more comprehensive coverage for multiple systems and appliances will generally have higher premiums than more basic plans.

In addition to the annual or monthly premium, home warranty plans typically require a service fee or deductible to be paid each time a repair person is dispatched to your home to address a covered issue. This fee is predetermined in your home warranty contract and remains constant, regardless of the actual cost of the repair or replacement, providing a predictable expense for homeowners.

Home Warranty Coverage: What’s Included and What’s Not

When it comes to home warranties, knowing what is covered and what isn’t can save you a lot of time and prevent frustration when you need to use your policy. Home warranties are designed to offer homeowners peace of mind by covering the costs associated with repairing or replacing major systems and appliances due to wear and tear. However, coverage can vary significantly from one plan to another, making it crucial to understand the specifics of your policy.

What does a home warranty cover?

Most home warranty plans offer coverage for a core set of systems and appliances that are essential for daily living. This usually includes:

  • Heating and cooling systems: Central air conditioning and heating systems, including furnaces, are often covered because they’re crucial for maintaining a comfortable home environment.
  • Kitchen appliances: Built-in microwaves, dishwashers, refrigerators, ranges, and ovens are usually covered. These appliances are considered essential for food storage and preparation.
  • Electrical and plumbing systems: Comprehensive coverage typically extends to the guts of your home – the electrical wiring and plumbing systems that make modern living possible.
  • Water heaters: Given their importance in providing hot water for bathing, cleaning, and cooking, water heaters are commonly included in home warranty plans.

What’s Often Excluded

While home warranties cover many systems and appliances, certain items and scenarios are typically not covered:

  • Pre-existing conditions: Issues that were present before the start of the warranty period are usually not covered.
  • Improper installation or maintenance: Appliances or systems that haven’t been installed correctly, or that have been neglected, might not be eligible for coverage.
  • Cosmetic damage: Aesthetic issues that don’t affect the functionality of an appliance or system are generally excluded.
  • Structural components: Items like your home’s foundation, walls, and roof are not covered by a standard home warranty and are typically addressed by homeowners insurance policies.

Unusual Coverage Options

Some home warranty providers offer unique coverage options that can be added to your plan for an additional fee. These might include:

  • Pool and spa equipment: Coverage for pool pumps and heaters can be added, perfect for homeowners who enjoy their backyard oasis.
  • Second refrigerator or wine cooler: For those with multiple refrigerators or specialized cooling appliances, additional coverage is available.
  • Septic systems and well pumps: Homes with these features can often add specific coverage to address repairs or replacements.

Making Sense of Your Coverage

To truly understand what your home warranty covers, take the time to read your policy’s fine print. Look for a clear breakdown of covered items, and pay attention to any limits on coverage amounts or the number of claims you can file within a certain period. If your policy includes a comparison chart or sidebar summarizing coverage, use it to quickly reference what’s included and what’s not.

Remember, the goal of a home warranty is to protect you from unexpected repair costs for essential home systems and appliances. By thoroughly understanding your coverage, you can make informed decisions about your home maintenance and prepare for any issues that might arise.

Evaluating the Cost of Home Warranties

When considering a home warranty, it’s essential to weigh the cost against the potential savings and peace of mind it offers. A home warranty isn’t just another expense; it’s a strategic investment in protecting your home and budget from unexpected repair or replacement costs. Let’s break down the cost of home warranties and compare it to the potential out-of-pocket expenses without one.

The Annual Cost of Home Warranties

The price of a home warranty can vary widely depending on several factors, including the coverage scope, your home’s size, and its location. On average, homeowners can expect to pay between $300 and $600 per year for a home warranty plan. This fee can be paid upfront annually or in monthly installments, making it a flexible addition to your financial planning.

Potential Savings with a Home Warranty

To truly appreciate the value of a home warranty, consider the cost of repairing or replacing major systems and appliances without one. Here are a few examples:

  • Air conditioning system repair/replacement: Without a warranty, fixing or replacing an AC unit can cost anywhere from $150 for minor repairs to over $5,000 for a full replacement.
  • Refrigerator repair/replacement: Repairing a fridge can cost between $200 to $400, while buying a new one can set you back $1,000 or more.
  • Plumbing issues: Addressing plumbing problems can easily cost hundreds to thousands of dollars, depending on the severity.

In contrast, with a home warranty, you would typically only be responsible for a service call fee ranging from $75 to $125 each time you report an issue, regardless of the actual cost of the repair or replacement.

Variability in Cost

The cost of a home warranty is influenced by several factors:

  • Home size: Larger homes may have higher warranty costs due to the greater number and size of systems and appliances.
  • Location: Pricing can vary by state or region, reflecting the local cost of living and the availability of service technicians.
  • Age of home: Older homes might incur higher home warranty costs due to the increased likelihood of systems and appliances failing.

Making an Informed Decision

When evaluating whether a home warranty is worth the investment for you, consider your financial ability to handle unexpected repairs or replacements. If a single significant repair could strain your budget, a home warranty could offer valuable protection and peace of mind.

Additionally, think about the age and condition of your home’s systems and appliances. Newer homes with newer appliances might not benefit immediately from a home warranty, but as systems begin to age, the potential for savings increases.

Ultimately, a home warranty can be a wise investment, offering significant savings and convenience compared to the potential high costs of repairs and replacements. By carefully considering your home’s specific needs and circumstances, you can decide if a home warranty is the right financial safety net for you.

How to Choose the Right Home Warranty Company

Selecting the ideal home warranty company requires careful consideration of several key factors to ensure you get the best protection for your home. Here’s what to evaluate to make an informed choice:

Assess the Claims Process

The efficiency and ease of the claims process are crucial. Inquire about how to initiate a claim with the home warranty company and the average time it takes to get a response. A reliable provider should offer 24/7 support to assist you whenever issues arise. Ensure the company has a reputation for a straightforward claims process, minimizing stress and inconvenience during urgent situations.

Examine Coverage and Exclusions

Understanding what is covered by the home warranty plan is vital. Check if the home warranty provider covers all essential home systems and appliances, or if you’ll need additional coverage for comprehensive protection. Be wary of exclusions that could affect key components of your home, and ask about options for supplemental coverage if necessary.

Compare Costs and Fees

Evaluate the affordability of the home warranty plan by comparing the cost of premiums and service fees with other providers. A competitive monthly or annual premium, along with reasonable service call fees, indicates a good value proposition. However, the lowest price isn’t always the best choice; balance cost-effectiveness with the extent of coverage and service quality.

Research the Provider’s Reputation

The credibility and reliability of the home warranty company are paramount. Look for accreditation by the Better Business Bureau (BBB) and review their ratings and customer feedback.

Checking with your state’s insurance commissioner can provide additional insights into the provider’s standing and history. Avoid companies with a track record of evasive behavior or those known for disappearing when a claim is filed.

Read the Fine Print

Before making your final decision, thoroughly review the contract. Confirm that the plan’s terms, including coverage details and limitations, match what was advertised or quoted. Understanding the fine print can save you from surprises down the line.

How to File a Home Warranty Claim

To ensure your home warranty claim is processed efficiently, follow these steps:

  1. Review your coverage: Check your home warranty contract to confirm the issue is covered, noting any exclusions or limitations.
  2. Initiate the claim: Contact your home warranty provider as soon as possible using their provided channels, such as online portals, email, or phone.
  3. Provide details: Offer clear information about the problem, including model numbers and a description of the issue, to expedite the repair process.
  4. Schedule the service: The company will arrange for a technician to assess and address the issue. Communicate any scheduling preferences you have.
  5. Prepare for the visit: Ensure the area around the appliance or system is accessible for the technician.
  6. Understand the outcome: After evaluation, the technician will repair or, if necessary, recommend replacement based on your warranty’s terms.

Tips for a Smooth Claims Process

  • Keep all warranty documents and maintenance records for reference.
  • Follow up with the company if updates on your claim are delayed.
  • Be aware of the service fee required for each claim to avoid surprises.

Bottom Line

A home warranty, combined with regular upkeep, represents a smart investment for safeguarding your home and budget. It offers peace of mind by covering repair or replacement costs of major home systems and appliances, potentially saving you substantial amounts in the face of unforeseen breakdowns.

While it requires an upfront cost, the long-term savings and convenience can far outweigh initial expenses, making it a worthwhile consideration for homeowners looking to minimize financial surprises.

Frequently Asked Questions

How long does a home warranty last?

When you choose home warranty coverage, it will come with a service contract for a set period of time. In most cases, it lasts for one year. You’ll then be able to renew your plan annually to keep your coverage intact. Cancellation policies will vary depending on which home warranty company you choose to work with.

Is a home warranty the same as home insurance?

No, they serve different purposes. Home insurance covers damage to your property from unforeseen events, while a home warranty covers repairs and replacements of major systems and appliances due to normal wear and tear.

How do I purchase a home warranty?

Research and compare different home warranty providers to find one that suits your needs. Reputable home warranty companies include Choice Home Warranty and Advanced Home Warranty. You can view a comprehensive list of top home warranty companies here.

Once you’ve chosen a provider, apply for coverage and pay the fee once your application is approved. Coverage typically lasts for one year and can be renewed annually.

Do home warranties cover all repair costs?

Home warranties usually require you to pay a service fee for each repair visit, but this fee is often significantly lower than the full cost of repairs. The warranty covers the rest, up to your contract’s limits.

Isn’t it cheaper to just use homeowners insurance?

Not necessarily. Your homeowners insurance policy covers damages from events like natural disasters, theft, and fire, but it doesn’t cover the cost of repairing or replacing appliances and systems due to wear and tear. That’s where a home warranty comes in, covering those gaps.

Is a home warranty part of closing costs?

A home warranty can be included in your closing costs if you choose to purchase one when buying a home. Sometimes, the seller or your real estate agent can negotiate a one-year home warranty into the deal.

Can I buy a home warranty after closing?

Yes, you can purchase a home warranty at any time, not just when buying a home. However, pre-existing conditions may not be covered, so it’s advantageous to get a warranty as soon as possible.

Are home warranties transferable?

Yes, most home warranty plans can be transferred to new homeowners if you sell your home, making your property more attractive to potential buyers.

What should I do if my claim is denied?

If your home warranty claim is denied, review the reason for denial and check your contract for coverage details. You can often appeal the decision by providing additional information or clarification about the issue.

How often can I use my home warranty?

There’s generally no limit to how many times you can use your home warranty within the contract period, but there may be limits on the amount covered for certain items or systems. Check your contract for details.

Can I choose my own repair technician?

Most home warranty companies require you to use their network of approved service providers. However, some plans may allow you to choose your own technician, subject to approval and reimbursement policies.

What happens if a covered item can’t be repaired?

If a covered item cannot be repaired, your home warranty plan typically covers its replacement. The specifics, such as whether you’ll receive a new model or the depreciated value in cash, depend on your contract’s terms.

Are home warranties tax-deductible?

No, home warranties are generally not tax-deductible for your primary residence. However, if you use part of your home for business, like a home office, or if you rent out a portion, you may be able to deduct a fraction of the home warranty cost. This fraction corresponds to the percentage of your home used for business purposes.

Looking for the Best Home Warranty Company?

Check out our reviews of the top home warranty companies.

Allison Martin
Meet the author

Allison Martin is a syndicated financial writer, author, and Certified Financial Education Instructor (CFEI). She has written about personal finance for almost ten years and holds a master's degree in Accounting from the University of South Florida.