What Is a Home Warranty and How Does It Work?

A home is a significant investment, and most people have a homeowners insurance policy to protect it. Homeowners insurance covers damages or losses resulting from an accident, natural disaster or theft. However, it doesn’t cover appliances that break down, HVAC systems that give out, plumbing issues or electrical failures. You can pay out of pocket for these home repair costs or cover them with a home warranty (also referred to as a homebuyers warranty).

So what is a home warranty and how can it help you save on appliance and home repair costs? A home warranty isn’t actually a warranty at all. It’s a service plan that covers the costs of repairing and replacing major appliances and home system components that break due to normal wear and tear. It provides a layer of financial protection beyond a homeowners insurance policy.

Once your coverage is active, if you have a problem with an appliance or home system covered by your plan, you can file a claim with your warranty provider. The provider then refers you to a service contractor in your area. The contractor determines the appliance’s or home system’s problem and the necessary repair. If you choose to go forward with the repair, you’ll pay an up-front fee to the contractor as defined in your home warranty contract. Your warranty provider will cover all other repair and labor costs if your plan includes this protection.

Consider this overview to determine whether you might benefit from purchasing a home warranty. See what benefits you can expect from most home warranty plans and what you can expect to pay for different plan types.

What coverage can you expect out of your home warranty?

Depending on the type of plan, home warranty coverage may include repairs and replacement of big-ticket items such as refrigerators, heating and cooling units, washing machines and water heaters. Wear and tear on these items is considered primary damage and is covered by many home warranties.

However, secondary damage that occurs due to primary damage isn’t typically covered. For example, if your water heater leaks and damages your hardwood floors, your home warranty would cover the repair of the water heater but probably not the secondary damage to the flooring caused by the leak.

What does a home warranty cover, and what does it not? Here’s a look at how home warranties cover most major home appliances and systems.

Major home appliances

Home warranty appliance coverage will vary by provider, but many offer primary coverage of major appliances. Remember that the warranty typically applies to normal wear-and-tear breakdowns only. If a lightning strike or power surge damages the electrical components of your fridge or oven, a home warranty policy likely won’t cover your repairs or replacements. Additionally, damage resulting from neglect or a lack of proper maintenance is typically not covered.

Most home warranty providers have a sample contract you can view before buying. The contract outlines what is and isn’t covered, and it may include the following:

Refrigerators

A good home warranty plan will safeguard all fridge components, but check the warranty plan’s contract for specific details. For example, some plans may not cover older model fridges, and stand-alone freezers aren’t often included in a standard plan.

Many plans cover water leaks and the repair or replacement of the refrigerator’s components that make up the mechanical and electrical systems. This includes the water filter and ice machine parts, evaporator fan, thermostat, lighting system and other hardware.

Washers and dryers

Several home warranty providers offer protection for all components of washers and dryers. For washers, this includes the washing machine tub and bearings, the agitator, water valves and drain pump. For a dryer, a typical plan will cover wear and tear on the heating element, motor, dryer drum and drum rollers.

Some providers don’t cover water supply lines to the washer or rollers other than drum rollers. Restrictions will vary by provider, so read your warranty carefully.

Oven

Most policies include your oven and its components. A repair likely will be covered if the bake element or temperature sensor goes out or the igniter and pilot assemblies fail. Some plans might also cover damage to digital touchpads and control timers essential for proper appliance use.

Dishwashers

Even though most dishwashers come with a manufacturer’s warranty, the average lifespan of a dishwasher is seven to 12 years, which far exceeds the original warranty length. Furthermore, manufacturer’s warranties don’t cover normal wear and tear that the dishwasher will experience with use. This can be covered with a home warranty. Check your specific plan for coverage details, length of coverage and how much the warranty will pay if you file a claim.

Major home systems

Home warranty policies vary significantly in their specific protections for home systems — heating and cooling, electrical, and plumbing systems. The following examples from specific home warranty contracts will give you an idea of what home system components may and may not be covered.

Water heaters

Most standard home warranty plans include your water heater. However, some providers only cover conventional gas or electric water heaters. If you have a tankless, solar or hybrid heater, make sure you choose a provider that protects your particular type of water heater.

A warranty should protect all components and parts of your water heater. Some providers may also cover failures caused by sediment, corrosion or rust within the water heater tank. Some policies may cover the replacement of conventional water heaters that are beyond repair. This is not typically the case for tankless water heaters because of the higher replacement cost, so the provider may only handle a portion of the cost.

Pool and spa systems

Additional coverage for a home’s pool or spa system can be purchased with your warranty for anywhere from $100 to $205 a year. How much it costs will depend on the company you purchase from and the extent of the coverage. Some parts that would be covered may include:

• Pool sweep motor and pump
• Pump motor
• Blower motor and timer
• Pipes and wiring
• Plumbing and electrical

Air conditioning systems

The size limit of air conditioning systems covered will vary by warranty provider, as will the limit on how much a provider will pay for repairs. Most providers will include all major air conditioning components and thermostats in a policy, up to a specified amount, along with some ductwork parts for ducted systems.

To give you an idea of how specific a home warranty contract can be with what is and is not covered, here are some of the coverages outlined in a sample contract by Cinch Home Services:

• Accessible ductwork
• Thermostats
• Air handler
• Blower fan motors
• Capacitors, compressors and condensers
• Condenser fan motors and coils
• Evaporator coils
• Fan blades
• Internal system controls
• Internal wiring
• Motors
• Condensate drain pans
• Refrigerant
• Refrigerant piping interior to the unit
• Relays
• Switches and controls
• Reversing valves

Plumbing

Home warranties that cover plumbing will typically pay for repairs of leaks and ruptures in showerheads, valves, pipes and faucets, as well as blockages in showers, tubs, sinks and toilets.

A sample contract discusses plumbing protection:

• Breaks or leaks in water, waste, drain or vent lines
• Toilets, toilet mechanisms and wax ring seals
• Faucets
• Showerheads and arms
• Valves
• Hose bibs
• Permanently installed sump pumps for groundwater
• Built-in bathtub whirlpool components
• Some sewage ejector pumps
• The clearing of toilet, sink, bathtub, shower and toilet stoppages
• The clearing of the main line and lateral drain line stoppages through an accessible cleanout up to 100 feet from the access point

Home warranty plan cost breakdown

How much does a home warranty cost? Prices vary by provider, the size and location of your home and other factors, but much of the home warranty price is determined by the type of plan you purchase.

Many home warranty companies offer three tiers of coverage. You can purchase a plan that covers just your appliances. Or if most of your appliances are new, you may opt for coverage on just your home systems. However, you’ll likely also be able to purchase an all-inclusive plan. Some providers also allow you to purchase add-on protections for in-ground pools, spa equipment or roofing leaks.

Remember that home warranty prices don’t include the service fee you’ll pay to the contractor who assesses and performs a repair for you. Service fees may range from $75 to $125 for a repair call and are defined in your home warranty contract.

The average home warranty cost depends on several factors, including your home’s location, type and size, the provider and the coverage options. Annual estimates may range from $250 to $900 or more.

Here is an estimated cost breakdown by plan type for three national home warranty providers for a single-family home in Bradenton, Florida.

System plans

Monthly costs for systems plans can vary greatly in price and coverage from one company to the next, but they can be very affordable:

• Cinch Home Services’ Built-In Systems plan: starts at $32.99
• America’s 1st Choice Home Club Systems Plan: starts at $37.83
• American Home Shield’s ShieldGold plan: starts at $39.99
• Liberty Home Guard’s Systems Guard plan: $54.99

Appliance plans

Most new appliances come with a manufacturer’s home appliance warranty, so a home warranty may be unnecessary. However, to cover appliances no longer under manufacturers’ warranties, you can expect to pay the following for a policy:

• Cinch Home Services’ Appliances plan: starts at $27.99
• American Home Shield’s ShieldSilver plan: starts at $29.99
• America’s 1st Choice Home Club Appliance Plan: starts at $30.25
• Liberty Home Guard’s Appliance Guard plan: $49.99

Combination plans

Combination plans typically include everything in a systems plan and an appliance plan. The average cost is often $5 to $10 more per month than either of the individual plans. When deciding to purchase one or the other, consider if it makes sense to buy a combination plan instead. Compare these sample costs to the separate system and appliance plans above:

• Cinch Home Services’ Complete Home plan: starts at $39.99
• America’s 1st Choice Home Club Gold Plan: starts at $45.42
• American Home Shield’s ShieldPlatinum plan: starts at $59.99
• Liberty Home Guard’s Total Home Guard plan: $59.99

Why should you invest in warranty coverage for your home?

Your answer to the question, “Do I need a home warranty?” depends on a few factors. Consider these three main benefits of a home warranty.

Eliminates the financial burden and out-of-pocket expense

Major appliance repairs can amount to hundreds or even thousands of dollars. Home warranty coverage helps you afford some or all of these out-of-pocket costs, depending on your purchase plan.

Provides a measure of protection when the unexpected happens

Maintaining a home can be a source of worry if you don’t have an emergency fund or other savings to help with the costs of necessary repairs. A home warranty allows you to cover many repairs and replacements for the price of your monthly premium and a service fee rather than the hundreds you might spend without a warranty. You’ll have a better chance of keeping your budget intact and avoiding debt when an unexpected breakdown or other problem occurs.

Entices potential buyers when selling a home

Home buyers don’t want a costly repair bill soon after purchasing a home any more than sellers want to deal with a repair bill when a sale is pending. A home warranty can protect both sellers and buyers. Since many warranty companies allow for the transfer of home warranties, a seller can pay the annual premium to protect the home before a sale. Then the seller can transfer the remainder of the warranty to the buyer. A warranty can assure potential buyers that they aren’t likely to be stuck with a significant repair bill or have to replace an appliance soon after moving into their new home.

Just be sure to shop around for a reputable warranty company rather than just going with the one your realtor recommends. Some realtors may receive kickbacks for referring clients to a specific warranty company.

How to choose a home warranty provider

There is no governing body to vet home warranty companies like there is for homeowners insurance providers. Home warranty regulations vary from state to state. To choose a reputable home warranty provider, consider a company that’s part of the National Home Service Contract Association (NHSCA). This non-profit provides self-regulation for companies that sign up as members and helps you research reputable companies that meet NHSCA guidelines. You can also read through home warranty company reviews on the Better Business Bureau website.

Once you narrow down your company search, determine what coverage each company provides, its protection limits and service fees. Then, compare the cost of each level of coverage to choose a reputable company that meets your warranty needs and budget.

Start shopping for coverage today

Now that you understand what a home warranty is and what a home warranty does and doesn’t cover, you can begin researching the best home warranties to find what you’re looking for.

Consider whether an appliance, system or combination plan will best serve you, and then carefully read contracts to determine coverages. You don’t want any unpleasant surprises when it’s time to file a claim. It’s a good idea to get at least three quotes since prices can vary by a few hundred dollars per year for different providers.

Finally, properly maintain appliances or home systems covered by the warranty to help ensure that any claim you make won’t be denied because of improper maintenance.