What Is a Home Warranty?

A home warranty, also known as a home protection plan, is an annual service contract that covers the cost of repairs and replacements to your major home systems and appliances. Unlike homeowners insurance, which covers liability, property loss, and short-term housing costs, a home warranty pays for repairs to your home systems and appliances when they break down from normal wear and tear.

Because they cover different situations, having both types of policies offers more comprehensive home protection. Our team has spent more than 5,100 hours researching the home warranty industry and speaking to both consumers and experts. This guide details the benefits of a home warranty, what one covers, and our recommended home warranty providers.

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What Does a Home Warranty Cover?

Home warranty plans cover the repair and replacement of your home’s major systems and appliances when they wear out. There are three primary types of home warranty coverage: system plans, appliance plans, and combination plans.

• System plans cover whole-home systems such as air conditioning, heating, ductwork, electrical, plumbing, water heaters, garbage disposals, smoke detectors, ceiling and exhaust fans, and doorbells.
• Appliance plans cover major appliances such as refrigerators, dishwashers, ranges, ovens, stoves, built-in microwaves, clothes washers and dryers, garage door openers, and free-standing ice makers.
• Combination plans cover both systems and appliances. Some home warranty companies allow you to customize your plan by choosing the items you want covered.

Most companies also provide optional coverage for miscellaneous items such as your pool, hot tub, spa, or second refrigerator. Customers can add these items to their plans for an additional monthly cost.

Note that home warranties don’t cover all types of damage to covered items. A home warranty company will pay to repair or replace covered items that break due to normal wear and tear. Damage from accidents, lack of maintenance, improper installation, or repair, rust, or corrosion is not covered. Also, cosmetic damage that doesn’t affect the item’s function won’t fall under the terms of a home warranty.

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How Much Does a Home Warranty Cost?

We requested quotes from the most popular nationwide home warranty providers and found that a home warranty costs between $540 and $865 annually or between $45 and $72 per month.

Basic plans that cover only systems or only appliances fall on the low end of that range, while comprehensive plans that include systems, appliances, and add-ons fall on the higher end.

In addition to a monthly premium, customers must pay a service call fee every time a technician comes to their house to assess a covered item. Most service fees cost between $75 and $125, but some companies offer service fees as low as $60. Sometimes this service fee is called a deductible, and it’s paid directly to the repair technician at the time of service.

Before buying a home warranty plan, ask the company if any current promotions or discounts are available. Some companies such as Select Home Warranty offer promotions that give customers two months free when signing up.

If you’re purchasing a house, 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.

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Benefits of a Home Warranty

By covering common home appliances and systems in case of wear-and-tear damage, a home warranty offers many benefits:

• Saves homeowners money on expensive repair and replacement costs.
• Provides an easy way for homeowners to tackle repairs promptly.
• Includes the repair services of a provider-vetted local expert, so you don’t have to call around to find a repair technician.
• Acts as a valuable real estate incentive if you sell your home.

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How Does a Home Warranty Work?

Home warranty coverage typically kicks in 30 days after your first payment. Once the warranty period begins, if a covered item breaks down, you can file a service request with your provider. A trusted technician will come to your home and diagnose the problem. If the breakdown is due to wear and tear, the repair will usually be covered.

The claims process is generally straightforward and follows these steps:

1. A covered appliance or system breaks down due to normal wear and tear.
2. Call your home warranty provider to file a claim, or submit it online.
3. Once the company processes your service request, it sends a technician to address the broken item within 48 hours.
4. At your home, the technician looks at the system or appliance and recommends a repair or replacement. At this time, you’ll pay the service call fee.
5. If the repair is minor enough and the contractor has all the necessary parts, they can immediately repair it. If a larger repair or replacement is needed, they’ll schedule a follow-up appointment.
6. Instead of a replacement, the home warranty provider may offer you the cash value of the appliance up to the coverage limit.

Make sure you understand the claims process before signing a contract. LPT Realty founder David Tully offers this advice: “You need to understand how to file a claim to your provider and how quickly you can expect a response from them. Also, get to know the turnaround time they would take for the repairs and replacements.”

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How Are Home Warranties Regulated?

Unlike insurance companies that must be licensed by the National Association of Insurance Commissioners and the Federal Insurance Office, home warranty companies aren’t regulated by federal law.

According to the Service Contract Industry Council (SCIC), a national trade association that works with lawmakers to develop uniform federal regulations, states regulate the home warranty industry under consumer protection laws. Thus, 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.

Some states may require a home warranty company to be licensed, while others will just require a company to register in the state. Licensing requires a provider to meet specific criteria, pass competency exams, or get certified before doing business.

Registration may include completing a form and paying a fee to be an authorized provider in a state. However, registration 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—a few home warranty companies are scams and give trusted home warranty providers a bad name. Review our article on regulation for home service contracts for more information on how states regulate home warranty companies.

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How To Buy a Home Warranty

Before purchasing a home warranty, consider a few factors to ensure you get the best protection plan for your home.

• Pick the type of plan you want. Some companies organize their plans based on the number of items covered under each plan, while others divide coverage by the type of item (systems versus appliances). Take note of the age and condition of items in your home and weigh your coverage options before buying a plan.
• Look at coverage caps. A home warranty provider usually places coverage caps on certain appliances or systems. This limited amount typically covers repair costs, but if your home item needs replacement, it might not cover the entire bill. For example, if your electrical system has a $2,000 coverage cap, you’re responsible for paying any amount past that limit.
• Think about the price you’re willing to pay. If you’re on a budget, plans below $50 a month may suit your preferences. However, the coverage caps for these plans are generally lower and the service fees are higher. Most companies will let customers pay monthly rather than yearly to make plans slightly more accessible for those who don’t wish to pay a large fee upfront.
• Consider customer service. If an item breaks down in your home, you’ll want a responsive and helpful customer service team to help you fix it. The best home warranty companies offer 24/7 customer service and have an online portal or app where you can file claims and check on their status.
• Learn about the company’s reputation. In a saturated industry, it can be difficult to determine which companies are legitimate. Look for a provider with 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.

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Recommended Home Warranty Providers

If you’re ready to buy a home warranty, we recommend the following companies based on more than 5,100 hours of research:

• 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 generous coverage caps and comprehensive plans, AHS lets customers choose between a $100 or $125 service fee. AHS doesn’t offer coverage in Alaska or Hawaii.
• First American Home Warranty: First American Home Warranty (FAHW) offers the First American Advantage upgrade with its comprehensive plans. This upgrade covers systems and appliances even if they were improperly installed, modified, or maintained. All plans also have a risk-free, 30-day money-back guarantee and provide solid appliance coverage. FAHW only offers coverage in 35 states.
• Liberty Home Guard: While Liberty Home Guard is a relative newcomer in the home warranty industry, it stands out thanks to its responsive customer service and more than 30 add-on options. It boasts high customer ratings on the BBB and Trustpilot websites. Additionally, its 60-day workmanship guarantee on repairs is double the industry standard of 30 days.

There are many more excellent home warranty companies out there. We recommend getting a quote from at least three providers to compare your options and find a price that’s right for you. As with any contract, make sure you know what’s included before signing it.

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FAQ About What Is a Home Warranty

Are home warranties worth the cost?

If you have older systems and appliances or you want peace of mind that major items are covered, then a home warranty is a good option. However, if you have brand-new appliances covered by 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 a year, though some companies will allow you to enroll in a multiyear plan if you pay upfront.

How can I renew my home warranty?

To renew a 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 or you’re buying a home and want to ensure it’s protected, you can purchase a home warranty. Note, however, that home warranties won’t cover items with preexisting conditions, and there’s typically a 30-day waiting period after you purchase the policy.

What do I do if a claim is rejected?

To avoid rejected claims, read your entire service contract before signing up for a home warranty plan. The most common reasons providers deny claims are because a broken item isn’t covered under the contract, the part that needs replacement is excluded, or an item wasn’t in good working condition before the contract started.

If a provider denies your claim, contact your home warranty company and request an appeal. If it’s unresponsive to your claim, file a customer complaint with the BBB. If you think you’ve been defrauded, contact an organization such as the National Home Service Contract Association (NHSCA) or your state’s district attorney office to report fraud.

Is a home warranty different from home insurance?

Yes, a home warranty differs from home insurance in that it covers major home systems and appliances from wear-and-tear damage. Home insurance typically covers damage to your home due to natural disasters or theft.

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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