Nothing’s more exciting than the sound of keys to a new home jingling in your hand. But excitement can turn to anxiety after you move in and problems arise. Replacing an air conditioning or heating unit could cost $3,000 or more, and a plumbing problem could add $1,500 to your credit card balance.
Fortunately, a home warranty can protect your home’s systems and may save you money in the long run. You can even purchase one for a home you’ve lived in for years. But home warranties aren’t perfect; they have limits and exclusions, and don’t cover your home from foundation to roof. However, they do offer great protection that most standard homeowners insurance policies don’t provide.
What Is a Home Warranty?
A home warranty is a service contract that covers home systems such as air conditioning and heating units, electrical infrastructure, kitchen appliances, and plumbing. When a covered system breaks down, you can contact the warrantor, who will send a technician to repair or replace it. In exchange, you pay an annual or monthly contract fee as well as a service fee when you request a service call.
Typically, warranty companies offer various coverage packages. Some providers offer a basic package, as well as premium plans that extend coverage to more home systems. Other companies offer plans that group items like kitchen appliances or major systems such as electrical, heating and air conditioning, and plumbing components.
Home warranty prices vary by home size, location, and type of residence, such as whether it’s a condominium, duplex, or single-family house. The average homeowner should expect to pay at least $400 per year ($33 per month), but could pay well over $900 per year ($75 per month) for a home warranty contract, depending on the company, property type, and extent of coverage. After purchasing a warranty, you’ll only pay a trade call fee—usually $100 or less—when you request a service call.
Typically, home warranty plans don’t have deductibles. However, warranty companies set limits on coverage amounts. For example, First American Warranty will pay up to $2,500 for a refrigerator, $1,500 for saltwater pool equipment, and $1,000 for a roof leak.
You can purchase a home warranty for an existing residence or a newly constructed home. Some home sellers include a home warranty in their contracts to forgo future liability and reassure shoppers that home systems are covered down the road.
What’s Included in Home Warranty Coverage?
Home warranties don’t come in one-size-fits-all packages, so it pays to shop around to find a plan that offers the best fit for your home’s systems. That said, most basic home warranties cover:
- Electrical systems
- Heating systems
- Plumbing systems
And many also cover:
- Ceiling fans
- Cooktops, ovens, and ranges
- Garage door openers
- Garbage disposals
- Built-in microwave ovens
- Plumbing stoppages
- Trash compactors
- Water heaters
- Whirlpool baths
For example, Landmark Home Warranty’s Home Systems Plan (its basic plan) covers major systems such as air conditioning and heating, electrical, and plumbing.
Other basic plans, such as Home Warranty of America's Premier Plan, are less likely to cover air conditioning, but may offer other coverages, such as for common appliances like dishwashers, ranges, and garage door systems.
Premium Coverage Options and Add-Ons
Home warranty companies typically offer premium packages, allow you to combine plans, or let you add systems and specific coverages to a basic plan.
For instance, with Landmark, you can add coverage for your refrigerator (for $4.17/month) or a well pump (for $7.50/month) to the basic plan.
What’s Not Covered by a Home Warranty?
A home warranty won’t cover systems that have preexisting problems before you enter into a contract. So if you want to buy a home warranty to replace an air conditioner that’s already blowing hot, you can forget it.
Additionally, while warranties come packed with exclusions, a few incidents are generally outside the purview of home warranty coverage, including:
- Losses caused by “acts of God”: Damage caused by earthquakes, landslides, lightning, or windstorms might be covered by your homeowners insurance policy, but not by your home warranty.
- Losses caused by accidents, electrical surges, and fires: Damage caused by these incidents is also more likely to be covered by your homeowners policy.
Coverage exclusions vary by provider, but the following coverage types were often excluded from the plans we surveyed:
- Pest control services
- Routine maintenance
- Alarm systems
- Attic and exhaust fans
- Hot water pump
- Smoke detectors
- Clothes washer and dryer
Purchasing a home warranty doesn’t relieve you of maintenance responsibilities. If you don’t take proper care of your home systems, the warrantor may not honor a claim. For example, if your heating system stops working because you haven’t changed the filter in a few years, the home warranty company probably won’t pay to repair or replace it.
As you can see, a home warranty isn’t the answer to all home system problems. Remember, you’ll pay an annual contract fee plus trade call fees, and payout limits may apply. Before signing a contract, read the fine print to understand what’s covered and what’s excluded.
Home Warranty vs. Homeowners Insurance
While a home warranty covers your home’s systems and/or appliances, homeowners insurance covers your home’s structure, detached structures, and personal possessions when they’re damaged or destroyed by perils such as a fire or storm. For example, if a fire destroys your living room, your home insurance policy can help pay to repair the structural damage and replace items such as furniture and electronic equipment. A homeowners policy can also cover legal expenses if someone sues you over an accident that occurs in your home, and can help pay hotel bills and restaurant tabs if you’re displaced from your home following a covered loss.
|Home Warranty||Homeowners Insurance|
|Available for older and newly constructed homes||Required by lenders for mortgaged homes|
|You pay contract and trade call fees||You pay annual premium|
|Covers system repair or replacement costs
||Covers structural damage to home or detached structures|
|Covers home systems||Covers theft of personal property|
|Pays for parts and labor costs for system repair or replacement||Covers dwelling loss of use expenses|
|Has exclusions||Covers personal liability expenses|
|May have payout limits||Payout limited by coverage and deductible|
Typically, standard home insurance policies don’t cover faulty equipment such as refrigerators or air conditioning units unless they are involved in a covered loss. For example, if an electrical short in your clothes dryer destroys the machine and causes a fire in your laundry room, your home insurance policy may pay to repair the structural damage and replace the dryer. But if the electrical short only damages the appliance, your homeowners insurance won’t pay to repair or replace it, unless your policy includes an equipment breakdown endorsement.
Is a Home Warranty Worth It?
If you have a well-appointed emergency fund, you might not need a home warranty. But if the thought of replacing a major system like a central air conditioning unit or water heater is enough to send you into a mental tailspin, a home warranty might provide the peace of mind and coverage you need.
When evaluating whether to purchase one, or how much coverage to get, consider the age and condition of your home’s systems, how much it would cost to replace them, and if you have the funds available to do so.