What is home warranty insurance and how does it work?

A home warranty is a service contract that covers the cost of replacement or repairs if a major home system or appliance breaks down due to normal wear and tear.

Pat Howard 1600Kara McGinley


Pat Howard

Pat Howard

Senior Editor & Licensed Home Insurance Expert

Pat Howard is a senior editor and licensed home insurance agent at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

&Kara McGinley

Kara McGinley

Editor & Licensed Home Insurance Expert

Kara McGinley is an editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

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A home warranty is a service plan that can provide an added layer of protection for your home’s systems and appliances. Most homeowners insurance policies won’t pay to repair or replace your plumbing, dishwasher, or any other system or appliance in your house if it stops working — wear and tear and maintenance-related damage is generally seen as the homeowner’s responsibility. If your home has older systems and appliances, a home warranty could eventually pay off.

But in some cases, you may find a home warranty is more trouble than it’s actually worth. In this guide, we’ll explain the ins and outs of home warranty contracts and whether they’re worth it or if you’re better off putting your money toward a rainy day fund instead. 

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Key Takeaways

  • A standard home warranty covers your home’s electrical, plumbing, heating, and water heater. But you’ll likely need to pay extra if you want additional protection for any appliances or equipment not covered under the base plan.

  • In some cases, a home warranty can make sense — like if you’re buying a house with old systems or potential defects. It may even be worth asking the seller if they can purchase the warranty on your behalf.

  • However, except for a rare set of circumstances, home warranties are rarely worth the $300 to $600 annual cost.

  • Home warranties are known to have unfair rules around when you can actually use the plan. For example, most warranties won’t cover damage to pre-owned systems or appliances if it’s determined that they lacked proper maintenance.

What does a home warranty cover?

A home warranty is a service contract that pays for repairs or replacement of your home’s systems or appliances if they malfunction or break down due to normal wear and tear. A basic homeowners insurance policy covers your house and everything inside against most types of sudden and accidental damage or loss, like a fire, windstorm, or theft. 

But this policy generally doesn’t extend to wear and tear or appliances that stop working because of old age. A home warranty essentially fills in that homeowners insurance gap.

Here’s a look at the different systems and appliances covered under standard home warranty insurance. 

Oven, range, or stovetopPlumbing
Garbage disposalElectrical
RefrigeratorWater heater
Trash compactorHeating
Washer and dryerCeiling fans

What does a home warranty not cover?

Unlike the relatively broad protection that you get with homeowners insurance, a home warranty doesn’t cover every system or appliance under your roof — just the ones specifically listed in your warranty contract. Additionally, you’re only covered if the loss is specifically due to old age, malfunction, or wear and tear. But there are instances where even that protection isn’t guaranteed.

In fact, home warranty companies will often refuse you coverage if the broken system or appliance predates you living in the home and they determine it wasn’t properly maintained. There are certain instances where this exclusion could make sense — like if you ignored an obvious leak or electrical issue that could have easily been fixed. But this is a major drawback of warranties, since the entire purpose of having one is to pay for expensive maintenance-related breakdown or wear and tear.

→ Learn more about home warranties vs. homeowners insurance

How much does a home warranty cost?

A home warranty costs anywhere from $300 to $600 a year on average, although prices can fluctuate depending on what kind of plan you have. For example, if you added a few optional coverages for your HVAC and spa equipment, you could be looking at a premium as high as $1,000 per year — almost as much as the average annual cost of homeowners insurance.

Along with your monthly warranty premiums, you also have to pay a service fee every time a technician or contractor is sent to your home. Service fees will typically run you anywhere from $60 to $120. 

Are home warranties worth it?

With a home warranty, you have the comfort of knowing your home systems and appliances are protected if they go kaput, as well as the convenience of not having to seek out a contractor or technician yourself. But warranties are rarely a good deal, especially if your home’s systems or appliances are still protected under manufacturer or builder warranties

When a home warranty can make sense

  • You’re a first-time homeowner. A home warranty could prove to be valuable for a first-time homeowner who isn’t familiar with what to do if your systems or appliances break down. With a warranty, you call the provider and they take care of the rest — if you’re covered, you simply pay a small fee for the repairs.

  • You live in an older house. A warranty might also be a good deal if you live in a house with older systems and appliances. If you’re buying an older home, the buyer’s inspection will likely include details about the age and condition of the home’s appliances. If the inspection uncovers, say, a host of plumbing issues, it’s worth asking the seller if they’ll cover the cost of a warranty or new plumbing.

  • You’re always pressed for time. If you’re not exactly the handy type and you’re pressed for time to find a repair person, having a home warranty saves you the trouble of comparing estimates and worrying about service contracts.

Why a home warranty might not make sense

  • It doesn’t cover every appliance and cause of breakdown. Warranties are quite limited in terms of what systems and appliances are covered and how they’re covered. Pools and hot tubs, for example, generally aren’t covered unless you pay for additional protection. Home furnaces and heating and cooling systems are usually covered, but certain components of home systems — like filters, vents, and baseboard casings — sometimes aren’t.

  • There are limits to how much the warranty company will pay. The contract will state how much you’re paid out per covered item or throughout the coverage term. Some warranty companies will limit payouts to $2,000 in total per covered item, and a $10,000 to $15,000 maximum limit per coverage period (the start and end date of the contract).

  • You don’t choose the service provider. One of the biggest drawbacks of home warranties is you typically don’t get to choose the contractor or the replacement appliance — your home warranty company does this for you on your behalf.

  • You might already be under a manufacturer's or builder's warranty. Many new systems and appliances are covered under the manufacturer’s warranty for anywhere from one to five years from the purchase date. If you live in a newly built home, the builder’s contract also may include a warranty period for up to 10 years for systems, plumbing, or electrical issues.

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Home warranty companies

Now that you’ve considered the pros and cons of home warranties, here are a few of the top home warranty companies.

American Home Shield

  • Four optional add-ons

  • Covers up to 24 items

  • $75 to $125 deductible

  • Monthly premium of $50 to $60

Select Home Warranty

  • Two optional add-ons

  • Covers up to 30 items

  • $85 deductible

  • Monthly premium of $36 to $44

Choice Home Warranty

  • Three optional add-ons

  • Covers up to 18 items

  • $75 deductible

  • Monthly premium of $36 to $38

Frequently asked questions

What is equipment breakdown coverage?

Equipment breakdown coverage is an optional home insurance add-on that covers your appliances from things like mechanical or electrical breakdown. However, damage due to age or normal wear and tear generally isn’t covered under this endorsement.

How do you file a home warranty claim?

In the event a system or appliance in your home breaks down, contact your home warranty company immediately to report the loss. After being notified of a claim, the home warranty company will send over a service contractor to assess the damage and provide a report to the warrantor.

If your claim is approved, the warranty company will send someone over to either repair or remove and replace the appliance. Your warranty company will then bill you your deductible, which is the out-of-pocket fee you’ll need to pay before your warranty plan will pay for the loss. Warranty deductibles are usually anywhere from $60 to $120.