What Is a Home Warranty & How Does It Work? (2024 Guide)

When you buy a home, you must protect it from devastating natural events that occur and from costly repairs due to normal wear and tear on major appliances and home systems.

A homeowner’s insurance policy protects you from damage to your home due to natural disasters, theft, or fire. However, it doesn’t cover the components of your home that help it function properly and keep you safe. For instance, homeowners insurance doesn’t cover items such as your dishwasher, refrigerator, electrical system, or water heater.

Homeowners can protect their home systems and major appliances from breakdowns and substantial repair costs with a home warranty. It provides additional coverage alongside homeowners insurance. Many home warranty plans are available, but first-time homebuyers often don't realize they can opt for this additional coverage. In this article I'll discuss what a home warranty is — how it differs from homeowners insurance — and how it works.

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What Is a Home Warranty?

A home warranty plan is typically a one-year service contract between you and a home warranty provider. It will cover the repair or replacement of your home’s major appliances and home systems due to normal wear and tear.

Once you’ve contracted with your home warranty company, you will typically be subject to a 30-day waiting period before being able to file a claim for any breakdowns.

A home warranty plan can be automatically renewed every year. This allows you to have coverage for home systems and major appliances that have many years of wear and tear.

Depending on the home warranty provider, you may be required to get a home inspection before finalizing a home warranty plan.

Home Warranties vs. Home Insurance

Unlike homeowners insurance, which covers damage or loss of property, a home warranty covers your home’s systems and major appliances due to failure or damage. Whether you are a first-time homebuyer or a real estate mogul, a home warranty plan can save you money and give you peace of mind when one of your home’s systems or major appliances stops working.

Average Home Warranty Prices 

Although the cost of a home warranty plan will vary depending on where you live and what plan you choose, you can expect to pay around $40 to $60 a month for home warranty coverage. Add-on coverage can cost you an additional $5 to $20 per month. 

After you file a claim requesting a repair or replacement, your home warranty provider will send a technician to complete the job. You won’t need to pay for the repair or replacement, but you will typically need to pay a service fee between $65 and $125.

Top Home Warranties for Your Needs

Company	Rating	Monthly Cost	Service Fee	Response Time	BBB Rating	Link
		$50-$60	$75	12-48 hrs.	NR	VISIT SITE
		$35–$75	$100–$125	24-72 hrs	B	VISIT SITE
		$44.99-$58.99	$70	48 hours	A+	VISIT SITE
		$46–$55	$85	24-48 hrs.	B	VISIT SITE
		$52–$58	$75-$85	24-48 hrs.	B	VISIT SITE
		$38–$62	$75–$125	48 hours	B	VISIT SITE
		$38–$48	$75–$125	48 hours	B	VISIT SITE
		$17–$60+	$65–$100	2–24 hrs	A-	VISIT SITE
		$28–$68	$100–$150	2–24 hrs	B	VISIT SITE

What Does a Home Warranty Plan Cover?

Most home warranty companies cover the same set of basic home systems and major appliances. A good home warranty plan should include coverage for the following home systems and appliances:

• HVAC
• Major appliances, such as a clothes washer and dryer
• Kitchen appliances, such as stoves, dishwashers, garbage disposal, and refrigerators
• Plumbing systems, including water heaters and plumbing stoppages
• Electrical systems, such as exhaust fans, ceiling fans, and doorbells

Some companies, such as American Home Shield, include roof leak coverage in its premium home warranty plans. But with most home warranty companies, you will have to purchase add-on coverage to protect your roof and other items. The most common add-ons are:

• Roof leak coverage
• Pools and spas
• Sprinkler system
• Sump pump
• Well pump
• Septic systems
• Stand-alone freezers
• Additional refrigerator

You should always confirm with the home warranty company what’s covered under your home warranty plan before finalizing the contract. You may be responsible for repairs of uncovered items in your home. All home warranty companies have exclusions in their home warranty plans.

The best home warranty companies provide a sample contract online for each plan. It’s important that you read the fine print regarding any exclusions, limitations to coverage and coverage caps.

Appliance Coverage vs. System Coverage

Most home warranty companies offer two to four coverage options. These coverage options include a major appliance plan, home systems plan, combo plan, and build-your-own plan.

An appliance-only plan covers all major appliances in the home. It's the best home warranty plan for those with old appliances and relatively new home systems already covered under an extended manufacturer’s warranty.

A systems-only plan covers all major home systems. It's the best type of home warranty coverage for those with old home systems but fairly new major appliances still covered under a manufacturer’s warranty.

In addition to these types of home warranty plans, some companies will also provide a basic plan or combination plan. A basic plan will cover general home items, like the refrigerator and electrical systems. A combination home warranty plan will offer slightly more comprehensive coverage and protect all home systems and major appliances, including your air conditioning systems, washer, dryer, and water heater.

Note: Certain appliances may not be covered depending on where you live and the home warranty coverage you have. Make sure you read your sample contract thoroughly to know the exclusions in your home warranty coverage.

Home Warranty Optional Add-ons

The best home warranty providers allow customers to customize their plans and add on protection for certain items at an additional cost. Some of the more popular add-ons are listed below:

• Pool and spa equipment
• Hot tub
• Well pump
• Septic pump
• Standalone freezer
• Additional appliances, like a second refrigerator or second microwave
• Roof leaks
• Pre-season HVAC tune-up
• Pest control services
• Guest unit
• Electronics

Exclusions & Limitations of Home Warranties

Although comprehensive coverage plans provide home warranty coverage for all of your household systems and major appliances, they have limitations. An exclusion refers to components and parts not covered by a home warranty plan. Coverage limits refer to the financial coverage you receive per home system or major appliance.

If the cost of replacing your home system exceeds the coverage limit, homeowners have to pay the difference out of pocket. Since a home warranty plan is designed to save you money in the event of a home system failure, this scenario is not ideal.

Another limitation to be aware of is the home warranty provider’s network of service technicians. Even if your home warranty company covers home systems and equipment, it may not always have the large network needed to send a knowledgeable technician to your home to fix the problem.

Reviews of Top Home Warranty Companies

When Should You Get a Home Warranty?

Although a home warranty plan is not necessary for all homeowners, everyone can benefit from comprehensive home warranty coverage. If you're considering a home warranty and fall into one of the groups below, I recommend getting a home warranty plan for your home.

1) You are a first-time home buyer: Buying your first home can be intimidating, and it’s expensive when your home's systems or major appliances break. First-time home buyers can benefit from a home warranty plan by saving money out of pocket for breakdowns to covered items right after moving into your first home.

2) You don’t have extensive fixer-upper experience: If you are not very knowledgeable about home repairs, you should purchase a home warranty plan. If something goes wrong, a professional will be sent to fix your home systems and major appliances.

3) You don’t want to set aside money for home systems: Instead of setting aside money to cover the cost of broken home systems or major appliances, invest in a complete home warranty plan that will cover those costs for you.

4) You have old systems and appliances: If you are worried about older home systems and major appliances breaking, you should purchase a home warranty plan that covers the inevitable breakdown of those items.

5) You own multiple properties: If you are a landlord and rent out multiple properties, you should take out a home warranty plan for each property and call for service when needed.

Other Helpful Home Warranty Guides

Added Benefits of Having a Home Warranty

Your home warranty company can provide much more than monetary benefits. The number one perk with this kind of home protection is peace of mind knowing you’re prepared for costly home repairs.

A home warranty plan offers more than just financial protection. It simplifies the repair process by providing you with a contractor that the home warranty company has checked out. You won't have to search for a reliable service provider to fix your problem. A home warranty plan also enhances your home's resale value by giving potential buyers peace of mind that systems and appliances are covered.

One of the best ways to research a home warranty company is by reading legitimate reviews, which provide customer feedback about their experience dealing with a specific home warranty company.

How Are Home Warranties Regulated?

Federal and state organizations govern home warranty companies in the U.S. to make sure each provider operates under a uniform protocol. While the federal government establishes the standard protocol that each state must follow, each state can regulate home warranty companies within its own borders.

States are not allowed to violate federal protocol, but each state can establish its own rules for home warranty companies. Because of this, you may find that some home warranty companies have different contracts for each state. For example, you may notice that a home warranty company has a different contract for California residents than for Alaska or Hawaii residents.

So, Should You Get a Home Warranty?

Yes, I recommend purchasing a home warranty. Having spent two decades helping homebuyers and home sellers as a Realtor, I have found home warranties to be beneficial for both. Before purchasing a home warranty plan, do your research. Check consumer reviews and third-party sites to compare plans. Look into customer satisfaction, pricing, limitations, exclusions, and plan features. Review the terms and conditions of each plan thoroughly.

This article provides links to home warranty plan reviews. The information comes directly from customer service representatives at the home warranty company. The overall rating is based on an unbiased, weighted 100-point scale. This scale scores companies on plans offered, coverage, state availability, cost, trustworthiness, customer service, and unique benefits.

If you are a veteran or military personnel, you might want to check out some of the exclusive warranty plans for veterans that some home warranty companies offer. These specialized plans often come with additional benefits and discounts tailored to those who have served in the armed forces. By taking advantage of these offerings, you not only protect your home systems and major appliances but also enjoy cost savings in appreciation for your service to the country.

A home warranty plan offers peace of mind and financial protection against unexpected home repairs. By thoroughly researching and considering your options, including veteran-specific plans if applicable, you can make an informed decision that best suits your needs. Remember, investing in a home warranty is an investment in the longevity and security of your home.

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