What is a home warranty? (2024 guide)
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When you lease a home, your rent is often the maximum you’ll pay for your housing costs that month. But when you own a home, your mortgage is the minimum payment when you factor in the expenses of utilities, maintenance and repairs.
The best home warranties can reduce the financial burden of common repairs for covered home systems and appliances when they break down from routine use. However, the terms of use aren’t always straightforward, and every contract has nuances, so it’s important to be informed about what’s covered –– and what’s not –– to avoid unexpected costs.
What is a home warranty?
A home warranty is a service agreement that protects homeowners from significant out-of-pocket costs when their essential home systems and appliances need repairs or replacement due to wear and tear.
While homeowners insurance protects homeowners from financial strain if their property is damaged due to a perilous event — including hail, fire, theft or robbery — it doesn’t cover the issues that arise in everyday life. Home warranties cover many of the most expensive items in your house, which can reduce stress if they stop working suddenly.
Home warranties cost about $500 to $700 annually, depending on the selected coverage tier and add-ons. They won’t replace a comprehensive homeowners insurance policy but can provide valuable peace of mind if repair costs outweigh the home warranty’s cost. Because a home warranty can be paid for in monthly installments, it can be a strategic cost-saving measure for homeowners on a fixed budget.
A home warranty agreement can also aid in connecting homeowners with qualified repair technicians without the need to research or request quotes from contractors. However, the fine print, coverage limits and add-on options can vary tremendously from provider to provider, so it’s important to request several quotes, compare the covered items and carefully review the terms to avoid misunderstandings and exclusions.
Home warranties aren’t required, but home sellers and real estate agents (for a commission) may offer them to buyers for additional peace of mind. Homeowners may also purchase them at any time.
What does a typical home warranty plan cover?
The typical home warranty doesn’t exist. Most home warranty companies have multiple tiers of coverage, and each tier has its own limitations and exclusions. It’s common to see appliance-only, systems-only and combination plan options.
From there, customers can elect optional add-ons for systems and appliances not covered by the base plans.
Major systems covered by a home warranty
Home warranties typically cover the following major systems:
Built-in heating and cooling systems
Electrical
Plumbing
Water heaters
Major appliances covered by a home warranty
Home warranties typically cover the following major appliances:
Built-in microwaves
Dishwashers
Garage door openers
Garbage disposals
Ovens, ranges and cooktops
Refrigerators
Washing machines and dryers
Additional coverage options for a home warranty
Many home warranty providers offer add-on coverage for an extra cost. Some companies, such as Liberty Home Guard, have an extensive list of add-on options, while others, such as American Home Shield, offer more limited options by comparison.
The following common items may be available for optional add-on coverage:
In-ground pools and spas
Minor roof leaks
Pro-series appliances
Septic pumps
Well pumps
Some companies may offer coverage that goes beyond the basic items.
This coverage may include guest units, electronics, stand-alone freezers, generators, re-key services and HVAC tune-ups. While home warranties generally cover one of each item, some companies allow homeowners to cover multiple HVAC units and major appliances if they purchase an applicable add-on.
What’s not covered by a home warranty?
Home warranties cover specific appliances and systems but don’t cover all the foreseeable malfunctions that could happen with that item. Liberty Home Guard, for example, defines a covered malfunction as a mechanical issue or broken part of a covered item resulting from ordinary use.
This definition excludes cosmetic damages and any issues stemming from weather or an act of God. Reputable home warranty companies will provide a sample contract outlining exclusions to avoid surprises down the line.
While every company has specific limitations and exclusions outlined in its service agreement, homeowners can expect a few common threads across the industry.
A home warranty may not cover the following items and scenarios:
Any product or system protected by a manufacturer’s warranty
Code upgrades and permits
Commercial-grade equipment, systems or appliances
Issues that arise from improper maintenance, installation or modification
Known preexisting conditions, or any defect that could have been detected by a simple visual inspection or mechanical test or was documented during a home inspection
Unknown preexisting conditions, such as missing or rusted parts, cracks or leaks
Labor and repair costs associated with accessing a covered item
Multi-family homes where other units aren’t covered
Properties used for commercial purposes
Recalled products or parts
Remediation or disposal costs for hazardous materials
Shared systems and appliances (for example, condominiums with shared ductwork)
Single-family homes, condominiums or townhouses larger than 5,000 square feet
Specialty equipment, such as cranes, required to remove or install covered items
Homeowners must also be mindful of coverage caps and claim limits. Home warranty providers generally have limits for each covered item, so reading the terms carefully is essential.
How does a home warranty work?
When homeowners subscribe to a home warranty plan, they either pay the entire annual plan fee upfront or they spread the plan cost into monthly payments. Paying the plan fee upfront may result in additional discounts, but paying in installments can make it easier to budget.
Home warranty costs depend on the provider and plan selection. The monthly fee is the cost to maintain the plan.
Home warranty plans also require a service call fee or a trade call fee. This service fee operates similarly to an insurance deductible; it’s the amount homeowners have to pay each time they file a claim for a covered item.
Customers usually pay this fee directly to the service technician.
The service call fee will be clearly outlined in the service agreement. The fee is assigned by the home warranty provider, but some companies allow homeowners to choose their own service call fee from a preset range if they’re willing to pay a higher monthly fee.
Pros and cons of home warranties
It can be helpful to examine the advantages and drawbacks of home warranties to ensure you’re making an informed decision for your situation.
Pros
Simplify scheduling with pre-vetted home repair technicians
Minimize out-of-pocket costs for routine home repairs
Offer add-ons to customize coverage
May save on annual fees if paid in full upfront
Provide 30- to 60-day service guarantees for repairs completed by their technicians
Cons
Exclude preexisting conditions, modifications and DIY repairs
May impose payout caps
Limit coverage to interior home components unless add-ons are selected
Require a service fee for each covered item
Who are home warranties for?
Home warranties can be worth it for specific situations, but it depends on several factors, including the home’s condition, the covered items’ known maintenance history, the homeowner’s budget and their capacity for finding a contractor.
Financially or time-strapped homeowners
Home warranties can provide peace of mind for homeowners who don’t have the time or interest in vetting contractors, requesting quotes and scheduling services. Home warranties simplify that process.
A home warranty can be a good investment if the anticipated repairs cost more than the home warranty. Otherwise, putting the funds in a high-yield savings account may be better to avoid overpaying for services.
New homebuyers and sellers
Home warranties can reduce financial anxiety immediately after purchasing a home if the homeowner wants to stay on a strict budget while they recoup their savings.
Jeran Miller, a realtor for One Oak Realty near Orlando, Florida, told us that home warranties are most valuable for real estate transactions when the seller doesn’t want to spend much time or money on repairs, especially with a small home where these repairs might eat into the homeowners’ profits.
In these cases, he recommends a home warranty. He added, “If the cost of fixing these items is too great for the seller, we can have them provide a year or two of home warranty coverage instead. This effectively gives the buyers a year or two to save additional funds for the replacement.”
A home warranty can also be valuable for anxious homeowners. If a potential homebuyer is worried about the age of appliances or systems in the home, Miller might throw in a home warranty. He said, “The home warranty can act as a way to comfort an especially risk-averse or nervous client going into a new home. “
A home warranty is generally worth it if the seller or real estate agent offers it for a pre-owned home with systems and appliances already subject to wear and tear, but it may not be worth it for a new construction home already protected by builders’ or manufacturers’ warranties.
Frequently asked questions (FAQs)
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