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Are Home Warranties Worth It?

Author Image Written by Dana Getz + 1 other Reviewed by Michael Mansueto Updated 12/12/2024

A home warranty, also known as a home protection plan, is an annual service contract that covers major appliances and systems when they break down due to normal wear and tear. You pay a monthly premium and the provider will cover repair or replacement costs for certain items that malfunction.

Naturally, homeowners want to know whether this monthly premium for a home warranty contract is worth the cost. Under the right circumstances, protection from one of the best home warranty companies could save you from paying expensive, out-of-pocket costs for repairs and replacements.

“A warranty can be valuable if the house is old and systems or appliances are at the end of their useful life. A home warranty in this case can reduce the out-of-pocket repair costs for the owners,” says Neil Eldin, Ph.D., professor of construction management at the University of Houston.

We’ll explain those circumstances as well as how home warranties work to show you whether one of these plans is worth it.

Did You Know?

  • In the last 30 days, more than 2,500 people bought home warranties from the above providers. Liberty Home Guard is our most popular provider, with 55% of buyers choosing to cover their homes with an LHG plan.

What Does a Home Warranty Cover?

To decide whether a home warranty is worth it, you first need to understand what a home warranty is and what it covers. Most plans either cover important home systems, home appliances, or a combination of both. The following appliances and systems are usually included:

  • Air conditioning
  • Heating
  • Plumbing
  • Electrical
  • Kitchen appliances like the refrigerator, dishwasher, oven, and built-in microwave
  • Clothes washer and dryer
  • Garage door opener
  • Water heater

In addition, most companies allow you to add coverage for items such as a central vacuum or pool pump for an extra monthly fee. If a covered item breaks from wear-and-tear damage during the duration of your home warranty, the company will send a technician to repair it. If a repair isn’t possible, the provider will typically either replace it or send you a check.


What Doesn’t a Home Warranty Cover?

Just as important as understanding what a home warranty covers is knowing what it excludes. Daniel Cabrera, founder of Sell My House Fast, said you should ask, “What are the limits and exclusions when buying a home warranty?” He added, “Homeowners should understand what specific items, parts, or situations the company excludes from the warranty.”

On covered items, typically only mechanical parts are protected. That means accessories like shelves, grilles, dials, and casings are typically not covered. A home warranty also won’t pay to repair purely cosmetic damage.

Most importantly, not all types of damage are covered. Sydney Sims, consumer advocate at Ownerly, says, “Home warranties often exclude repairs caused by insufficient maintenance or natural disasters. They typically do not cover preexisting issues or problems that occur due to neglect. Also, there might be coverage caps for certain items, meaning only a portion of repair costs will be covered beyond a set limit.”

A protected system or appliance will typically only qualify for repair if it breaks because of wear-and-tear damage. It also must be well-maintained and in good working order before the contract begins. Damage from the following conditions and situations won’t be covered unless your contract specifies that it is:

  • Accidental or purposeful damage
  • Damage from insufficient maintenance
  • Damage from improper installation, repair, or modification
  • Rust, corrosion, and sediment
  • Known or unknown preexisting conditions
  • Damage from natural disasters, crime, or acts of God

Before signing up for a home warranty, it might be worth getting a home inspection to verify that systems are properly installed and maintained. The home inspection report may also indicate which appliances are nearing the end of their expected lives, so you can get a better idea of which items need protection the most.


How Does a Home Warranty Work?

Once you’ve purchased a home warranty and signed the contract, there’s a 30-day waiting period before coverage begins. Once the waiting period is over, when a covered item quits working, you can call the home warranty company to file a claim or submit a claim online. Although most companies allow you to submit claims 24/7, you’ll wait until the next business day for the claim to be processed.

Once the claim is processed, the home warranty company will arrange for a preapproved service provider to come to your home to assess the problem, usually within 48 hours. The technician will diagnose the problem, and if it falls under the terms of your warranty, they’ll begin the repair process.

If possible, the technician will perform the repair immediately. If a replacement is necessary, they’ll schedule a follow-up appointment to complete the replacement. You’ll pay a service call fee directly to the technician every time they visit your home.


Home Warranties vs. Homeowners Insurance

Don’t confuse a home warranty with home insurance. “Both are extremely important to have with any purchase,” says Jennifer Okhovat, real estate agent at Compass in Beverly Hills. “If you are getting a loan on the home, your lender will require you to carry homeowner’s insurance. Having a home warranty can help you with especially smaller items that may unexpectedly stop working.”

Though both policies protect your home, they cover different items and circumstances. A home warranty covers systems and appliances in your home when they stop working due to normal wear and tear. However, homeowners insurance protects you financially when your home suffers damage from a catastrophic event, such as a natural disaster or fire.

For example, if lightning strikes your house and a resulting power surge fries your refrigerator, you’ll contact your home insurer for coverage. However, if your fridge needs a repair because it wears out after years of normal use, you’ll file a claim with your home warranty company.

It may still be a good idea to invest in a home warranty because of the cost savings you could receive on unexpected repairs and replacements.


What Are the Costs and Benefits of a Home Warranty?

Home warranties can provide peace of mind since you won’t need to worry about paying out of pocket for wear-and-tear damage to covered items. “As a business, third-party home warranty programs must take in more money than they pay out,” says Kevin Grosskopf, professor at the University of Nebraska-Lincoln. “Peace of mind, however, may be worth the price particularly when buying an existing home, particularly an older home.”

Home warranties can have tangible financial benefits, too. To determine these upsides, you’ll need to determine how much a home warranty costs and estimate how often you expect to use it.

How Much Does a Home Warranty Cost?

When it comes to home warranty prices, consider the monthly or annual premium, the service call fee, and other potential costs.

  • Premium—The premium is the monthly or annual fee you pay the home warranty company. Your premium will vary depending on factors such as the level of coverage you sign up for and where you live. The cost of a home warranty averages between $540 and $865 a year or between $45 and $72 per month.
  • Service fee—The service fee is what you pay the service technician who comes to your house to make a repair or replacement after you file a claim. It’s similar to a deductible in an auto insurance policy. Some home warranty companies like American Home Shield and America’s First Choice Home Warranty allow you to choose a higher service fee in exchange for a lower premium. The average service fee costs between $75 and $125.
  • Other costs—Most home warranty companies will charge an industry standard cancellation fee of $75 if customers terminate their plan after the first 30 days of coverage.

Sims provided a detailed overview of the factors that might affect the cost: “The cost of a home warranty is influenced by several things, such as the level of coverage chosen, geographic location, service fees, and frequency of claims. Plans with more comprehensive coverage, particularly for additional systems or premium appliances, tend to be more expensive. Some providers may also consider the age of the home and items being covered,” she says.

The actual net cost for a home warranty will depend on how often you use it for covered repairs. If a covered appliance or system breaks from wear-and-tear damage during your coverage period, the benefits can outweigh the premium and service fee costs. You may end up recouping every penny you paid for the home warranty with just one service call a year.

For example, the average cost to replace a water heater is $1,302. Let’s say you pay a $600 annual premium and two $100 service fees for the diagnosis visit and the replacement visit. In this case, the home warranty company has saved you $502 over the out-of-pocket cost of a water heater replacement.

Note that most home warranty plans include coverage caps on different home systems and appliances. The industry standard is $2,000 per system or appliance each year. If the repair or replacement costs more than the limit, you’ll pay the difference out of pocket. However, with an annual premium of $600, you still stand to save up to $1,400, minus service call fees, on repairs or replacements that exceed the coverage cap.

Benefits of a Home Warranty

The benefits of a home warranty aren’t limited to cost savings. You’ll also save time and hassle on hiring repair technicians yourself. Here’s what you stand to gain:

  • The peace of mind that comes from knowing you won’t have to pay the full cost of a repair or replacement when a covered system wears out
  • Access to a network of experienced, preapproved service providers, saving you the hassle of locating a trusted local contractor
  • The convenience and simplicity of just one phone number or website to turn to when you need service on a worn-out appliance or home system

For the most accurate cost data, we recommend getting quotes directly from the top companies in the industry.


Expert Insights and Tips

Neil Eldin Headshot
Neil Eldin, Ph.D.
Professor of Construction Management
University of Houston
See answers

Read bio
Do you think a home warranty is worth it? Why or why not?
The answer depends on the circumstances. A warranty can be valuable if the house is old and systems or appliances are at the end of their useful life. A home warranty in this case can reduce the out-of-pocket repair costs for the owners. However, if the house is new or recently refurbished with new systems and appliances, a home warranty may not be worth it.
What are some of the limits and exclusions when buying a home warranty?
Typical exclusions include:
Damages existed prior to the warranty starting date
Damages resulting from improper installation, lack of routine maintenance, and usage negligence
Damages resulting from force majeure (acts of God) events like floods, earthquakes, and similar disasters
Owners are always advised to carefully review the details of the warranty because some warranties may include some additional exclusions such as pools, mold mitigation, etc.
Are there any red flags to look out for when choosing a home warranty provider?
Yes, there are. Homeowners can easily find reviews posted online by previous homeowners. For example, consistent complaints about denied claims, poor customer service, hidden fees, high service fees, and high costs for diagnostics are typical red flags. In addition, high-pressure sales attitudes to sign up for a warranty and ambiguous language about coverage/exclusions are additional red flags.
Neil Eldin, Ph.D., brings over 40 years of distinguished experience in construction engineering and management and is recognized as a visionary leader, dedicated educator, and prolific researcher. His career spans academia, industry, and international consulting, reflecting a remarkable balance of practical expertise and scholarly excellence. In 2004, Eldin was honored with the U.S. Presidential Service Award for his exceptional contributions to U.S. government international construction projects across Eastern Europe, the Far East, and the Middle East. Further cementing his legacy, Stanford University recognized him in 2020 as one of the top 2% experts in his field. 

Eldin’s academic career includes roles as professor, department chair, and college dean at prestigious institutions such as the University of Wisconsin-Madison, Oregon State University, Texas A&M University, Purdue School of Engineering and Technology, and the University of Houston.
Kevin Grosskopf Headshot
Professor
University of Nebraska–Lincoln
See answers

Read bio
Do you think a home warranty is worth it? Why or why not?
As a business, third-party home warranty programs must take in more money than they pay out. As a result, the average consumer will pay more in monthly fees and service calls than they will receive in warranty repairs and replacements. This may be especially true of new or newer homes that are not likely to incur major outlays for repairs or replacements in the first 10–15 years of service. Peace of mind, however, may be worth the price particularly when buying an existing home, particularly an older home.
New(er) homebuyers should consider that most homes come with an expressed warranty from the builder for at least a year, followed by an implied warranty governed by statutes of repose in the state they live in. For most states, this is 10 years or more and may cover many of the items covered in a home warranty program. Furthermore, HVAC equipment and appliances, windows, siding, roofing, etc., may be covered by manufacturer warranties that will pro-rate material and equipment replacement costs for 5, 10, or, in some cases, 15 years or more. Manufacturer warranties, however, usually do not cover replacement labor.
Third-party home warranty packages are often offered during the resale of an existing home. In many cases, the third-party home warranty company is affiliated with the person(s) providing the lender-required home inspection. Most home warranty packages are offered in tiers from basic to comprehensive coverage of equipment and appliances as well as other more “fixed” components of the house such as electrical wiring and fixtures, plumbing piping and fixtures, and “envelope” systems such as windows, siding, and roofing.
Depending on the level of coverage, the homeowner will pay a monthly fee that may vary from ~$100/month and up. If a covered item breaks or is in need of repair, the homeowner will pay an additional service fee, usually $100 or more, to have a pre-approved contractor provide service. The third-party warranty company will ultimately decide if the equipment or appliance is repaired or replaced. The warranty company may, at its own discretion, repair a piece of equipment several times, and collect service call fees each time, rather than replace the equipment.
For equipment and appliances that are replaced, the homeowner should ensure that the equipment and appliances are registered with the manufacturer to ensure warranty coverage. Registration is also important if the equipment or appliance is recalled or is eligible for extended warranties.
Home warranties may often be confused with homeowners insurance. When might one be more important to invest in over the other? When is having both important?
Homeowners insurance and home warranties are different. Homeowners insurance covers loss from major events such as fire and windstorms and is generally required by mortgage lenders. Homeowners insurance does not usually cover repair and replacement of equipment and appliances that wear out over time.
What would you say is the most important benefit of having a home warranty (experienced service providers, convenience, avoiding full cost of repair, etc.)?
All the above with the understanding that you are likely to pay more over the long run. In many ways, it is almost like financing or “hedging” the future (and unknown) cost of repair and replacement.
Kevin R. Grosskopf, Ph.D., is a professor at the Charles W. Durham School of Architectural Engineering and Construction at the University of Nebraska-Lincoln. Prior to academia, Grosskopf worked in the residential and commercial construction industry. Dr. Grosskopf has expertise in building health, safety and productivity, as well as modular (prefab) construction. Grosskopf has received more than $8M in research grants and endowments, has published more than 140 peer-reviewed articles and reports, and has given more than 100 invited presentations in more than 20 countries.
Jennifer Okhovat Headshot
Real Estate Agent
Compass
See answers

Read bio
Home warranties may often be confused with homeowners insurance. When might one be more important to invest in over the other? When is having both important?
Both are extremely important to have with any purchase. If you are getting a loan on the home, your lender will require you to carry homeowner’s insurance. Having a home warranty can help you with especially smaller items that may unexpectedly stop working. A great example from personal experience of mine is of a garage door that is working properly when the home is purchased. A few months go by after the escrow is closed, and the garage door stopped working. A garage company came out and wanted to charge $2,000 to fix the problem. But when home warranty was called, only a $100 service fee was paid to the warranty company, and the garage door was taken care of.
Do you think a home warranty is worth it? Why or why not?
Yes, a home warranty is SOOOO worth it. It is so widely used, that in California, there’s actually a deal point built into the CAR Purchase Agreement. A home warranty can cover both small- and large-ticket items that can often be addressed quickly. In the LA market in particular, a home warranty is typically paid by the seller for the first year.
What would you say is the most important benefit of having a home warranty (experienced service providers, convenience, avoiding full cost of repair, etc.)?
The most important benefit to me of having a home warranty is avoiding full cost of repairs and having reliable and dependable service vendors to tend to the property. Also, the work done would be warrantied. The cost savings from having a warranty policy are very attractive for any homeowner.
Jennifer Okhovat is a lifelong resident of Beverly Hills and a proud graduate of Beverly Hills High School and Cal State University Northridge. She became a licensed agent in early 2009 and quickly moved up the ranks to become one of the top agents at Compass’ Sunset Strip office.

She works with a wide range of clients throughout Los Angeles. Areas of service include West Hollywood, Hollywood, Hollywood Hills, Los Feliz, Beverly Hills, Hancock Park, Culver City, Miracle Mile, Beverly Grove, and Silicon Beach. She has been a party to more than 100 leases during her career and has broken sales records for a number of properties, including the highest price for a single-family residence sold in West Hollywood West in all of 2019.
Sydney Sims Headshot
Sydney Sims
Consumer Advocate
See answers

Read bio
What are some of the limits and exclusions when buying a home warranty?
Home warranties often exclude repairs caused by insufficient maintenance or natural disasters. They typically do not cover pre-existing issues or problems that occur due to neglect. Also, there might be coverage caps for certain items, meaning only a portion of repair costs will be covered beyond a set limit.
Are there any red flags to look out for when choosing a home warranty provider?
Look for red flags like excessive exclusions, high service fees, or low coverage caps that might limit the benefits. Be cautious with providers that have unclear terms, bad customer service reviews, or a high frequency of claim denials. Also, avoid companies with vague or overly restrictive cancellation policies, as these could make it difficult to end the contract if needed.
What factors might affect the cost of a home warranty?
The cost of a home warranty is influenced by several things, such as the level of coverage chosen, geographic location, service fees, and frequency of claims. Plans with more comprehensive coverage, particularly for additional systems or premium appliances, tend to be more expensive. Some providers may also consider the age of the home and items being covered.
As a consumer advocate at Ownerly, Sydney is proud to use her pragmatic and thorough approach to help homeowners navigate the sometimes complex world of property ownership. Sydney is consistently on the pulse of what consumers need to know. Her blend of expertise and approachability make her a perfect fit for essential advice on owning a home.

Is a Home Warranty Worth It?

Now that we’ve laid out the considerations, costs, and benefits, you can decide for yourself whether a home warranty is worth it. If a covered home appliance or system wears out in the course of normal use, a home warranty could well pay for itself with the cost of a single repair. Since you can’t predict when your home systems or appliances will fail, a home warranty could come in handy, especially for an older home.

However, if you’re purchasing a new construction home, a home warranty might not be necessary. That’s because your home will come with brand-new appliances and systems that are covered by a manufacturer’s warranty. A manufacturer’s warranty protects items if they fail due to defective materials or faulty workmanship, but not because of wear and tear. That’s when a home warranty comes into play.

Overall, certain circumstances make home warranties more valuable to homeowners. We recommend buying a home warranty if:

  • You want to limit the amount you pay out of pocket for repairs or replacements of worn-out home systems and appliances.
  • You own an older home.
  • You’re a first-time homebuyer and want protection for your systems and appliances.
  • You’re planning on selling your home and want to entice potential buyers.
  • You’re new to an area and don’t know any local repair technicians.

To learn about our top-recommended home warranty companies, read our in-depth company reviews:


Our Rating Methodology

We back up our home warranty ratings and recommendations with a detailed rating methodology to objectively score each provider. We conduct research by speaking with company representatives, requesting quotes, analyzing sample contracts from each company, and conducting focus groups and consumer surveys. We then score each provider against our review standards for coverage, cost, trustworthiness, plan transparency, customer support, and flexibility to arrive at a final score on a 5-point rating scale. To share feedback or ask a question about this article, send a note to our Reviews Team at reviews@thisoldhousereviews.com