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What Is a Home Warranty?

A home warranty can prevent you from paying expensive costs on repairs and replacements to major home systems and appliances. Keep reading to learn more.

Farmhouse at Emerson Green exterior shot William Geddes

A home warranty, also known as a home protection plan, is an annual service contract that covers repairs and replacements to major home systems and appliances that break down due to normal wear and tear. Unlike homeowner’s insurance, which covers liability, property loss, and short-term housing costs, a home warranty covers the systems and appliances in your home.

Keep reading to learn about the benefits of a home warranty, what exactly one covers, and how to purchase the right plan.

What Does a Home Warranty Cover?

Home warranty plans cover your home’s major systems and appliances. There are primarily three types of home warranty coverage: systems plans, appliance plans, and combination plans.

  • System plans will cover whole-home systems like your air conditioning, heating, ductwork, electrical, plumbing, water heater, garbage disposal, smoke detectors, ceiling fans, and doorbells.
  • Appliance plans will cover major appliances like your refrigerator, dishwasher, range, oven, stove, built-in microwave, clothes washer and dryer, garage door opener, and freestanding ice makers.
  • Combination plans cover both systems and appliances. Some home warranty companies will also allow you to customize your plan and pick and choose the items you want covered.

Most companies will also provide optional coverage for miscellaneous items like your pool, hot tub, spa, or second refrigerator. Customers can tack on these items to their plan for an additional cost every month.

How Much Does a Home Warranty Cost?

On average, a home warranty costs between $300–$600 for annually. Basic plans that cover only systems or only appliances may fall on the low end of that spectrum, while more comprehensive plans that include systems, appliances, and add-ons will fall toward the higher end.

In addition to a monthly premium, customers will have to pay a service call fee every time a technician comes to your house to assess the covered item in question. Most service fees cost between $75–$125, but some companies offer service fees as low as $60.

Before buying a home warranty plan, ask the company if any current promotions or discounts are going on. Some companies, like Select Home Warranty, offer promotions where customers get two months free when signing up.

Benefits of a Home Warranty

If you’re wondering how you might benefit from a home warranty contract, here are a few perks that the best home warranty companies offer:

  • Saves homeowners money on expensive repair and replacement costs.
  • Provides an easy way for homeowners to tackle repairs promptly.
  • The home warranty company will send a local expert, meaning you don’t have to call around to find a technician for repairs.
  • Home warranties can be a valuable real estate incentive if you’re selling your home.
air conditioning iStock

How Does a Home Warranty Work?

After purchasing a home warranty, coverage typically kicks in within 30 days after your first payment. If a covered item breaks down under warranty, you can file a claim or service request with your company and get the issue addressed.

If you’re in the process of purchasing a home, you may be able to roll your home warranty into your mortgage payments. Talk to your mortgage lender and confirm with your home warranty company if this is possible.

In general, here’s what the process looks like:

  1. A covered appliance or system breaks down due to normal wear and tear.
  2. You call your home warranty provider to file a claim or you can submit a claim online.
  3. Once the service request has been processed, the company will send a technician to address the broken item typically within 48 hours.
  4. At your home, the technician takes a look at the system or appliance and recommends a repair or replacement. At this time, you would pay the set service fee.
  5. If the repair is minor enough and the contractor has the necessary parts, they can make the repair right away. If a replacement is needed, they’ll have to schedule a follow-up appointment to complete the replacement.
  6. After the repair or replacement is complete, you can enjoy your newly functioning system or appliance.

How Are Home Warranties Regulated?

Unlike insurance companies that have to be licensed by The National Association of Insurance Commissioners and the Federal Insurance Office, home warranty companies aren’t regulated by any federal laws.

According to the Service Contract Industry Council (SCIC), a national trade association that works with lawmakers across the country to develop fair and uniform regulation to protect consumers, the home warranty industry is regulated in all 50 states under consumer protection laws, and these laws and regulations vary from state to state.

For example, the Florida Office of Insurance Regulation handles home warranties in Florida, whereas the Texas Real Estate Commission regulates home warranty companies in Texas.

Additionally, some states may require licensing for a home warranty company, while others will just require a company to register in the state. Licensing requires a provider to meet certain criteria, pass competency exams, or get certified before doing business in a state.

Registration may include completing a form and paying a fee to be an authorized provider in a state, but it doesn’t necessarily require a company to get certified or meet certain standards before operating.

Because of the differences in state regulation—and lack of regulation in some states—some home warranty companies are scams and give trusted home warranty providers a bad name. For more information on how states regulate home warranty companies, review this guide on state licensing for home service contracts.

How to Buy a Home Warranty

Before purchasing a home warranty, there are a few factors you should consider to ensure you’re getting the best protection plan for your home.

  • Pick the type of plan you want—Some companies will organize their plans based on the number of items covered under each plan while others will divide coverage by the type of item (systems vs. appliances, for example). Take note of the items you have in your home and weigh your coverage options before buying a plan.
  • Look at coverage caps—Sometimes, a home warranty provider will place coverage caps on certain appliances or systems. This limited amount will typically cover repair costs, but if a replacement needs to be made, it might not cover the entire thing. For example, if there’s a $2,000 coverage cap on your electrical system, you would be responsible for paying any amount past that limit.
  • Think about the price you’re willing to pay—If you’re on a budget, there are plans below $50 a month that will suit your preferences. Most companies will let you pay on a monthly basis as opposed to an annual fee to make plans slightly more affordable for those who can’t pay a big fee upfront.
  • Consider customer service—In the event that an item breaks down in your home, you’ll want a responsive and helpful customer service team to help you get it fixed. The best home warranty companies offer 24/7 customer service and have an online portal or app where you can file claims.
  • Learn about the company’s reputation—In a saturated warranty industry, it can be difficult to determine which company is legitimate. When searching for a provider, look for one that has at least a B rating from the Better Business Bureau (BBB) and read third-party customer reviews to get a good idea of what it’s like to work with the company.

Recommended Home Warranty Providers

If you’re ready to buy a home warranty, consider the following companies. We recommend getting a quote from all three providers so you can compare your options and negotiate better deals, finding a price that’s right for you.

  • American Home Shield: With more than 45 years of experience, American Home Shield (AHS) is one of the most trusted companies in the business. Known for providing generous coverage caps and offering comprehensive coverage plans, AHS also lets customers choose between a $75, $100, and $125 service fee. AHS may not be the right choice for you if you live in Alaska.
  • Choice Home Warranty: Choice Home Warranty (CHW) is great for homeowners who have older systems or appliances, as the company doesn’t deny coverage based on the age of your home or your systems or appliances. It gives customers the option of choosing between a basic plan or comprehensive plan for $36–$44 per month. However, Choice is not available in California, Oklahoma, or Washington.
  • First American Home Warranty: First American Home Warranty (FAHW) is different from other companies in that it offers a First Class Upgrade, which covers systems and items even if they were improperly installed, modified, or maintained. It also has a risk-free, 30-day money-back guarantee and provides 24/7 customer service. FAHW may not be a good choice for you if you want protection specifically for your air conditioning.

For information on other top home warranty companies, read our in-depth reviews:

Frequently Asked Questions

Are home warranties worth the cost?

If you have systems and appliances that are about to be on the fritz or want to have peace of mind that major items in your home are covered, then a home warranty is a good option. However, if you have brand new appliances that are covered under a manufacturer’s warranty, you may not need a home warranty for a few years.

How long do home warranties last?

Most home warranties last for a year, though some companies will allow you to enroll in a multi-year plan if you pay upfront.

How can I renew my home warranty?

To renew your home warranty, contact your provider to begin the renewal process. Some companies will auto-renew the policy for you.

When can I buy a home warranty?

Whether you’ve lived in your home for years and decided to just now get protection or you’re buying a home and want to ensure it’s protected the second you sign, you can purchase a home warranty at any time.

What do I do if a claim is rejected?

To avoid having claims rejected, read your entire service contract before signing up for a home warranty plan. The most common reasons that claims are denied are because a broken item isn’t covered under contract, certain item replacements are excluded, or an item wasn’t in good working condition prior to the start of the contract.

If your claim is denied, contact your home warranty provider and request an appeal. If your company is unresponsive to your claim, file a customer complaint on the Better Business Bureau and contact an organization like the National Home Service Contract Association (NHSCA) or your State’s District Attorney’s Office to report fraud.

Is a home warranty different from home insurance?

Yes, a home warranty is different from home insurance in that it covers major home systems and appliances whereas home insurance typically covers damage to your home due to natural disasters or theft.

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