What Is a Homeowners Warranty?

·10 min read

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Owning your own home is exciting; it's where you build memories with friends and family, relax and reset, and fulfill many of life's daily tasks. In order to make this magic happen, you need your home to work for you-specifically, the appliances and systems that keep your home running.

A homeowners warranty protects those appliances and systems for you, bringing you peace of mind when they inevitably fail or malfunction.

Our team has done extensive research on home warranty providers to support you in making the best decision for your home, needs and budget. It's our goal to provide unbiased information to readers and uphold the highest standards of integrity in our recommendations.

Based on this research, we've come up with a list of the top home warranty companies, and American Home Shield rose to the top as the best overall.

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Before making your choice, you'll need the basics on how home warranties work. We'll give you an overview of coverage, who's right for a home warranty, how much they cost, and explain the purchase process.

Homeowners Warranty Overview

Your home is host to many systems and appliances that you rely on things like your dishwasher, your heating and air conditioning units, and your plumbing. When they fail, repair or replacement is often expensive, and can throw a kink in your finances.

Home warranties cover either total or partial repair and replacement of these systems in the event of a failure. Consider the first really hot day after spring has broken. You've been comfortable with open windows for a few months, but it's time to finally turn on the air conditioner. Once you've turned it on, you notice after an hour or so that the house isn't cooling-your evaporator coil has cracked. In this case, you could fall back onto your home warranty to help with the repairs.

Typically, homeowner warranties are a year-long contract for which you pay monthly or annual fees for coverage.

Home Warranty Coverage

There are over 70 home warranty companies in the United States. They range from older companies like Choice Home Warranty and American Home Shield, to newer companies like The Home Service Club and Pride Home Warranty. Each of these providers typically offer two or more plan types, as well as add-on options that cover specific items not typically covered by home warranties.

What's Covered in a Home Warranty?

Some items are usually covered, meaning they are part of most basic home warranty plans. Some items are sometimes covered, meaning there's an option for coverage with a more premium plan. Some items are add-ons, meaning coverage is available at an additional price (details depend on the provider).

In many cases, these plans are split into systems coverage and appliances coverage, and cover failures due to normal wear and tear. The amount of coverage ranges between $250 and $4,000 dollars depending on the appliance or system. For example, it's typical for kitchen appliances to be covered up to $500, whereas failure of a sub pump is typically between $1,000 and $2,000, depending on the provider. The details of exactly how much coverage your home warranty provides can be found in a sample service agreement on their website.

Appliances Coverage

  • What's Usually Covered: Clothes washer/dryers, kitchen refrigerators, ovens, ranges, stoves, and cooktops.

  • What's Sometimes Covered: Ice makers, dishwashers, garbage disposals, garage door openers, built-in microwaves, trash compactors, and built-in food centers.

  • What's Typically an Optional Add-on: Hot water dispensers and stand alone freezers.

Systems Coverage

  • What's Usually Covered: Air conditioning/cooler, heating system, water heater, electrical system, plumbing system, plumbing stoppages, and ductwork.

  • What's Sometimes Covered: Doorbells, smoke detectors, ceiling fans, garbage disposals, instant H/C water dispensers, and central vacuums.

  • What's Typically an Optional Add-on: Sump pump, septic pump, pool & spa, tankless water heater, well pump, and guest unit.

Who Needs a Homeowners Warranty?

There are three types of people who may be in need of a homeowners warranty: sellers, buyers, and owners.

  • Sellers can elect to purchase homeowner warranties to protect appliances and systems in their home during the selling process, and in some cases, can purchase warranties on the buyer's behalf.

  • Buyers can inherit homeowner warranties from sellers who have purchased a home warranty until the sale of the new home has closed. Real estate agents can help in this process.

  • Homeowners can elect to purchase homeowner warranties at any time, either after buyer's warranties have expired, or at any other time during home ownership.

Home Warranty vs. Homeowners Insurance

Home warranties are not homeowners insurance. The combination of both types of coverage is recommended in order to provide you with the most comprehensive level of protection.

  • Homeowners Insurance is often required for the purchase of a new home and pays for damages and loss caused by outside forces such as fire, weather, and vandalism.

  • Home warranties cover the cost of repairing and replacing systems and appliances within your home.

New Homes vs. Older Homes

You can purchase a home warranty for both new homes and older homes. They're often more desirable for homeowners of older homes that contain appliances and systems that likely have more wear and tear.

As long as your appliances and systems are functioning at the time of purchase of your home warranty, they will be covered regardless of their age. However, many home warranties do not cover the replacement of appliance and system parts that are no longer being manufactured. A home inspection can help you determine whether or not appliances and systems are in good working condition.

It's important to read your own service agreement thoroughly to determine whether or not a warranty covers your items.

Home Warranties Cost

The cost of home warranty typically runs around $350 to $600 a year, according to Angie's List. Enhanced plans can add between $100 and $500 more, depending on the items covered. The price of your plan depends on the plan, provider, and home location.

In addition to the typical cost of your home warranty, some providers will also require sign-up fees, premiums, and services fees and/or deductibles.

Sign-up Fees

Some home warranty providers may require a sign-up fee. These fees often cover your application and labor required for entrance into your home warranty agreement.

Premiums

Premiums are often included with the purchase of any insurance, including healthcare, auto, home, life and others. These premiums are income for the insurance company. It's also paid as a liability, and acts as coverage for the claims being made against the policy. Your premium is the $350 to $600 a year we mentioned before.

Service Fees and/or Deductibles

In addition to the annual premium, you can expect to pay service fees each time a claim is made. These service fees range from $60 to $100 depending on the service call and contractor recommended.

Cost Benefits

The cost benefit of a home warranty depends on how frequently you make valid claims against your policy. If the average cost of repair or replacement of appliances and systems is greater than the amount of your annual premium, then your home warranty plan that year is worth it.

To illustrate this point, we compared the cost of repair for three common home appliances and three common home systems with the amount typically covered in a home warranty. The coverage amount is a range based on our research on the top 10 home warranty providers.

Appliances

  • Clothes dryer: $80 - $300 (average repair cost) vs. $250 - $500 (home warranty coverage)

  • Clothes washer: $50 - $180 (average repair cost) vs. $250 - $500 (home warranty coverage)

  • Kitchen refrigerator: $200 - $400 (average repair cost) vs. $250 - $500 (home warranty coverage)

Sources: blog.puls.com, thumbtack.com, angieslist.com

Systems

  • Air conditioning/cooler: $50 - $1,200 (average repair cost) vs. $1,000 - $1,750 (home warranty coverage)

  • Heating systems: $170 - $270 (average repair cost) vs. $1,000 - $1,750 (home warranty coverage)

  • Water heater: $250 - $550 (average repair cost) vs. $500 - $750 (home warranty coverage)

Sources: hvac.com, improvenet.com

Home Warranties Process

Review the Sample Service Agreement

If the home warranty provider you're looking into is worth working with, they'll have a sample service agreement on their website. It's absolutely critical that you review the sample service agreement before making your decision, as there are often several limitations on which claims are accepted and which are not.

For example, it's common for home warranty providers to stipulate that your appliance or system was in good working condition at the time you purchase your home warranty in order for it to be covered.

How to Contact Your Provider

When you're ready to reach out to a provider for more information, you can typically do so via the phone number listed on their website, or through an online form. Some providers also list email addresses or have live chat functions for you to reach them directly online.

How to File A Claim

Depending on the system or appliance that's broken, there will be different parameters for filing a claim. For example, if your gas line fails, you'll need to contact your utility provider directly. For an item like a refrigerator, there is often a timeframe (two to four weeks after the item fails) in which you're required to file your claim.

You can contact your provider's customer service representatives through their listed phone number or online portal to file a claim. The process might look something like this:

  • Contact your provider to file a claim

  • Claim review (10 - 30 days)

  • Set appointment with contractor

  • Repair or replacement

The Best Homeowners Warranty Providers

There are a lot of home warranty providers out there. We've selected American Home Shield and Choice Home Warranty as the top two best options, based on their coverage, policies, and customer service.

#1 Best Overall: American Home Shield

American Home Shield is a home warranty company that has been in business for over 45 years and claims to have founded the home warranty industry. They cover 49 states, excluding only Arkansas, and have a network of 15,000 contractors available for repairs and replacements.

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They offer three different plan types: the ShieldSilver for systems, and the ShieldGold and ShieldPlatinum for a combination of both systems and appliances. The ShieldPlatinum also includes additional limits for maximum coverage and special features like roof leak repairs and an HVAC tune-up.

They have a BBB rating of B and 1.5 stars on Trustpilot.

#2 Best Basic Plan: Choice Home Warranty

Choice Home Warranty has been in business for 11 years and operates in 48 states, excluding California and Washington. Based in Edison, NJ, they've handled over 2.5 million service requests and cover more than 1 million homes across the United States. For repairs and replacements, they have a network of over 15,000 contractors available.

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This provider offers two types of coverage: the Total Plan and the Basic Plan, which include the majority of home appliances and systems. The Basic Plan is our top choice for basic plans in the home warranty industry, covering 14 appliances and systems. The Total Plan covers all items in the Basic Plan with the addition of air conditioning systems, refrigerators, and clothing washers and dryers. Add-ons are available if needed.

They have a BBB rating of B- and 4 stars on Trustpilot.

If you're in the market for a home warranty, we recommend getting a price estimate to weigh your best options.