What Is A Home Warranty and How Does It Work?

what is a home warranty
Homeowners insurance doesn’t cover everything — have you filled in the gaps? | Adobe Stock, © Ursula Page

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Once you’ve decided to buy a home, you should do everything you can to protect it from devastating events covered under a home insurance policy and normal wear and tear on appliances and home systems that can lead to costly repairs. 

Although a homeowner’s insurance policy protects you in the case of damage to your home due to natural disasters, theft or fire, it doesn’t protect the components of your home that keep it functional and safe. For instance, insurance doesn’t cover items such as your dishwasher, refrigerator, electrical system and water heater.

However, many first-time homebuyers aren’t aware that they have the option of a home warranty plan’s added coverage.

What is a Home Warranty?

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

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

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

Home Warranties vs Home Insurance

Unlike homeowners insurance, which covers damage or loss of property, a home warranty covers your home’s systems and 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 appliances stops working.


Average Home Warranty Price 

Although the cost of a home warranty will vary depending on where you live and what plan you choose, you can expect to pay around $40 to $60 a month for a home warranty. 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.

home warranty guide

Home Warranty Resources

How Do Home Warranties Work?

As soon as you notice that one of your home systems or appliances is not working, you should file a claim. Many home warranty providers require that you do so immediately or you may not receive coverage.

Although the procedure for filing a claim may vary from provider to provider, the process is simple and generally follows these steps:

  1. Call your warranty provider or go online to its website
  2. If filing online, log in to your account to submit a claim
  3. Your representative will reach out to a local service provider and set up a time to fix your system or appliance
  4. The service provider will accept the request and confirm your appointment
  5. You will be sent the date and time for the service appointment and pay the service fee
  6. The service technician will come to your home and assess the broken system or appliance
  7. Once your warranty provider approves the claim, your system will be repaired or replaced

What Does a Home Warranty Plan Cover?

Most home warranty companies cover the same set of basic home systems and appliances. A good home warranty plan should include coverage for the following 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 plans. But with most 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 what’s actually covered under your home warranty plan before finalizing the contract. You may be responsible for repairs of uncovered items added to your home.

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

Exclusions & Limitations of Home Warranties

Although comprehensive coverage plans can provide warranty coverage for all of your household systems and appliances, it still has limitations. While an exclusion usually refers to components and parts not covered by a warranty, coverage limits often refer to how much financial coverage you receive per home system or appliance.

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

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

When Should You Get a Home Warranty?

Although a home warranty is not necessary for all homeowners, everyone can benefit from comprehensive coverage. If you are thinking about taking out a home warranty and can identify with one of the below groups, you should consider a home warranty.

1) You are a first-time home buyer: Buying your first home can be intimidating, and it’s even worse when one of your new home’s systems or appliances breaks. First-time home buyers can benefit from a home warranty because you will not have to pay a lot of money out of pocket if something breaks right after moving into your first home.

2) You don’t have extensive handyman experience: If you are not very knowledgeable about home repairs, you should purchase a home warranty that will send a technician to fix your home systems and appliances if something goes wrong.

3) You don’t want to set aside money for home systems: Instead of setting aside money to cover the cost of broken systems or 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 systems and appliances breaking, you should purchase a home warranty 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 for each property so that you can easily call for service when needed.

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 in knowing you’re prepared for costly home repairs.

One of our biggest tools as a research team is legitimate reviews that provide customer feedback about their experience dealing with a specific home warranty company. This is one of the best ways to get to the essence of a company’s service and claims processing.

How Are Home Warranties Regulated?

Federal and state organizations govern home warranty companies in the U.S. to ensure 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 warranties within its 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.