What Is a Home Warranty and What Does It Cover?

·7 min read

A home warranty is a service contract that protects your home’s appliances and systems (plumbing, electrical, HVAC, etc). For a monthly or annual premium, a home warranty will repair or replace appliances and systems that are malfunctioning or have broken down due to normal wear and tear. Home warranty protection plans are designed to cover your property for a fixed period, and may also include add-on coverage for things like pools and hot tubs if you pay extra.

Table of contents

How do home warranties work?
What does a home warranty cover?
What isn’t covered by a home warranty?
What are the costs of a home warranty?

How do home warranties work?

Home warranties have coverage limits (which we’ll go into below). The items covered also vary by company and plan. For example, one company may cover your central AC while another won’t. Similarly, a company may offer a plan that only covers a second refrigerator if purchased as an add-on. Home warranty companies also have coverage limits and exclusions outlined in their contracts. Because of this, some claims might be denied. It is important to know all these details before you decide on a company and plan.

How long do home warranties last?

For the most part, home warranty service contracts are sold for one-year terms. Usually, homeowners are allowed to renew their home warranty contract year after year, thereby ensuring their property remains protected.

Differences between home warranties and homeowners insurance

While home warranty coverage and homeowners insurance policies have some things in common, they are essentially two different products. The main differences lie in what they cover. Below you will find a detailed comparison.

Home Warranties

Homeowners Insurance

Covers repair or replacement of appliances and home systems due to malfunction or breakdown.

Covers the home’s structure and contents from damage due to accidents and natural disasters. It also covers theft of personal property, and offers liability protection.

Not required with a mortgage, but sometimes included by home sellers as part of a real estate transaction.

Required of home buyers by mortgage lenders.

A home warranty can be transferred to a new owner.

Home insurance cannot be passed on to a new owner.

What does a home warranty cover?

Home warranty plans are typically categorized into two broad areas: systems and appliances. The specifics depend on your agreement with the company, but most companies have separate plans for each, and often a premium plan that includes both.

Generally speaking, the technician sent by the home warranty company will first try and repair the malfunctioning appliance or system. If that’s not possible, a replacement will be procured.

The following are items usually covered by the best home warranties. Remember to always read the fine print and know the details regarding your coverage and covered items.

Covered systems

  • Heating system

  • Air conditioning systems (HVAC systems)

  • Electrical system

  • Plumbing system

  • Water heaters

  • Ducts

Covered home appliances

  • Garbage disposals

  • Dishwashers

  • Ceiling fans

  • Bathroom exhaust fans

  • Clothes washers and dryers

  • Garage door openers

  • Ovens / stoves / cooktops

  • Refrigerators / freezers

  • Ice makers

  • Doorbells

  • Trash compactors

  • Instant hot water dispensers

Additional coverage

  • Electronics

  • Guesthouses

  • Swimming pools

  • Spas

  • Septic pumps

What isn’t covered by a home warranty?

Most home warranty providers won’t have plans that cover things like additional air conditioners, water heaters and refrigerators. Structural elements like windows, walls, floors and foundations are usually out as well.

Companies often add new coverage plans, or sometimes even alter existing plans to add or remove items. Regardless, here is a list of things not typically covered:

  • Cosmetic damage

  • Light fixtures

  • Outdoor water systems

  • Booster pump

  • Remote controls

  • Disposing of debris

  • Appliance accessories

It is important to note here that just because a system or appliance is listed under your plan doesn’t mean it will always be covered. Home warranty companies have a reputation for denying claims and finding all kinds of reasons not to cover items.

As boring as it sounds, it is imperative homeowners go through the contract agreement before purchasing a plan to see what major systems and appliances are included, and also to see potential reasons said items would not be covered. The home warranty should have a sample contract agreement online. If they don’t, forget that company.

Coverage limits on home warranties

All home warranty companies have caps that will determine how much the provider will pay to cover your claims. Depending on your particular plan and coverage options, these limits can be imposed on an item-by-item basis and range anywhere from $500 to upwards of $3,000 or more. So if your contract says the maximum dollar amount on refrigerator coverage is $2,000, that’s the most they will pay to repair or replace, as long as you are meeting your monthly premium and pay the service fee.

Oftentimes limits are imposed on certain home repairs themselves such as roof leaks, septic systems, and well pumps.

Some companies also have aggregate limits: an annual cap on the amount they will pay out for any and all claims. If claims exceed these limits, you will have to pay out of pocket. This can affect your budget and your household, should you decide you can’t meet this obligation.

As such, we would encourage you to sign up with a home warranty provider with coverage limits you are comfortable with. It’s the best way to manage expectations and protect your finances.

What are the costs of a home warranty?

Broadly speaking, a home warranty can cost anywhere between $300 and $600 a year. This puts the monthly costs between $25 and $50. Home warranty companies offer different plans with varying premiums, depending on the amount of coverage that’s included. Of course, your final numbers will depend on various factors, particularly on whether you decide to include optional add-ons.

Keep in mind that should you file a claim, you’ll have to pay the service call fee associated with the repair, a deductible that usually falls between $60 and $125.

Home Warranties FAQ

What does a home warranty do?

A home warranty service provider offers homeowners financial protection against the cost of system and appliance repair and replacement.

How much does a home warranty cost?

Typically, a home warranty can cost between $300 and $600 a year. Monthly premiums total between $25 and $50. Most home warranty companies offer free quotes and sample contracts on their websites.

How do you cancel a home warranty?

Before ending a home warranty, it's important to be fully aware of the company's cancellation policy. Next, we suggest calling the company directly and giving them a verbal notice of termination. You may also want to send this in written form via certified mail. To make sure you are not charged thereafter, make sure to cancel any automated payment methods.

Are some home warranty companies bad?

Every type of business has suspicious practices and scammers, and home warranties are no exception. Although in our time reviewing home warranties we have run into an actual scam or two, in our experience, the main complaint concerning these companies has been constant claims denial and stinginess.

How do I choose the best home warranty company?

To protect yourself it is imperative that you check the reputation and business ratings of whichever company you are considering. Also, make sure the company is registered in your state and allows you to speak directly with associates over the phone. Customer reviews always trend negative, but if what you see is nothing but a litany of denied claims and poor communication, avoid that company. Furthermore, if you see a 100% pattern of negative complaints detailing companies not picking up the phone or not sending technicians out at all, this is most likely an out-and-out scam. Stay away!

Is a home warranty the same as homeowners insurance?

No, they are not the same thing. Home warranties will protect your home systems and major appliances. Homeowners insurance protects your home structure and other personal belongings against damage due to hazards. Moreover, a home insurance policy is almost always a requirement for properties that were bought with a mortgage loan.

Are home warranties worth it?

Many financial experts say having a dedicated savings account for appliance and system repair costs makes more sense than paying premiums on a home warranty service contract year after year. But if you're the kind of person who has difficulty saving, have appliances and systems that are approaching the age of repair or replacement, or simply want the peace of mind knowing you are covered for potentially costly repairs, a home warranty may be the way to go.

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