Home warranty insurance: What is it & what does it cover?

A home warranty is a service contract that helps cover the cost of broken home appliances or systems, like your refrigerator, washer and dryer, and HVAC system, but warranties are limited in terms of what’s covered and may not be worth the cost.

Pat Howard 1600Kara McGinley

By

Pat Howard

Pat Howard

Property and Casualty Insurance Expert

Pat Howard is a senior editor at Policygenius specializing in property and casualty insurance. His work has been featured on Property Casualty 360, Fatherly, MarketWatch, and more.

&

Kara McGinley

Kara McGinley

Property and Casualty Insurance Expert

Kara McGinley is an insurance editor at Policygenius, specializing in home, auto, and renters insurance. She's been writing about insurance since 2019, and her work and insights have been referenced in Kiplinger and WRAL.com.

Updated August 11, 2021|6 min read

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A home warranty is a service contract that covers the cost of household system and appliance replacement or repairs if they break down because of age or normal wear and tear. Homeowners insurance does not cover wear and tear, which is why people sometimes buy a home warranty (in addition to a homeowners policy) to supplement that gap in coverage. 

When you enter into the warranty, you pay monthly premiums to a warranty company, and in return you have the assurance of knowing you won’t have to pay thousands for a new dishwasher or furnace if they stop working. But home warranties aren’t always worth it or necessary — if your appliances are new they’re likely already covered by a manufacturer’s warranty. 

While many appliances are covered by home warranties, a typical contract can be confusing and full of coverage exclusions and limitations. Any appliances and systems that weren’t maintained properly aren’t covered if they stop working, so if your furnace breaks down because the previous owner never changed the filter, the warranty company probably wouldn’t cover its replacement or repairs.

Key Takeaways

  • Home warranties are service contracts that cover the cost of replacement or repairs to appliances and certain home systems if they break down due to wear and tear or age

  • Home warranty contracts can be confusing and come with exclusions and coverage limitations

  • It may not be worth it to buy a home warranty if your appliances are new or if your insurer offers equipment breakdown coverage

What does home warranty insurance cover?

A basic home warranty covers most major appliances and systems in a typical home, such as your dishwasher, oven, water heater, HVAC system, and plumbing and electrical systems if they stop working due to things like age or wear and tear.

Warrantors may also offer optional add-ons that enhance the coverage in the warranty contract. One company, for example, offers a premium coverage upgrade that expands coverage for water heaters in the event of sediment buildup. Another upgrade expands air-conditioning coverage to include ductless window units.

Example of covered systems and appliances

AppliancesSystemsOther home features
MicrowaveAir conditioningBurglar and fire alarm systems
DishwasherDuctworkCeiling and exhaust fans
Garbage disposalElectrical systemCentral vacuum
Oven/cooktopHeating system/furnaceDoorbells
Trash compactorPermanent sump pumpGarage door opener
RefrigeratorPlumbing systemRe-key services
Washer/dryerWater heater

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What does a home warranty not cover?

A home warranty is not designed to replace a homeowners insurance policy. It only protects certain appliances and household systems from specific types of loss, like breakdown due to wear and tear and old age. 

Home warranty companies will also deny coverage for existing or pre-installed systems and appliances that haven’t been properly maintained, or in some cases, were improperly installed. This can be a big headache for homeowners, since what’s considered “properly” or “improperly” maintained is often arbitrary; even if you’ve inherited a household full of older appliances, your provider will likely refuse to honor the warranty if they weren’t maintained properly.

How much does home warranty insurance cost?

A home warranty generally costs between $300–$600 on average [1] , although pricing will depend on your level of coverage and provider. If you add multiple enhancements and upgrades onto your plan, you could be looking at an annual cost as high as $1,000 — not that much less than the average annual cost of homeowners insurance.

Besides the cost of the plan itself, you’ll have to pay a service fee every time a technician or contract is sent to your home for assessments or repairs. Fees range from about $60 to $120, depending on the scope of the work that needs to be done.

Is home warranty insurance worth it?

With a home warranty, you have the comfort of knowing your home systems and appliances are protected if they stop working, and the convenience of not having to seek out a contractor or technician each time. But warranties are not always a good deal, especially if you have a newer home with systems and appliances still covered under manufacturer or builder warranties. 

If you recently bought a home and added new, spiffy appliances and a home entertainment system with a two-year warranty, you’re probably not going to need your appliances covered straight away. Some credit card companies and online retailers will even double the manufacturer's warranty, further lessening the need for warranty coverage.

The pros of home warranties

If you’re a first-time homeowner: Warranties are particularly valuable if you’re a first-time homeowner who may not know who to call if your air-conditioning stops working one day. 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.

If 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, plumbing and electrical issues, it might be more worthwhile to see if the seller would be willing to cover the expenses of new systems and appliances rather than take out a warranty.

Warranties can save you 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.

The cons of home warranties

A warranty doesn’t cover every appliance and cause of loss: Warranties are quite limited in terms of what systems and appliances are covered and how they’re covered. Pools and hot tubs, for example, are generally not covered unless you add protection onto your plan. Home furnaces and heating/cooling systems are technically covered, but certain components of home systems — like filters, vents, baseboard casings, etc — are not covered.

There are limits to how much your warrantor will pay out for a loss: 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 $10,000–15,000 maximum per coverage period (the start and end date of the contract).

You don’t choose the service provider: A big drawback of warranties is you typically don’t get to choose the contractor or replacement appliance. While it might be convenient that you don’t have to hunt down the right handyman, plumber or fix-it company to make repairs, that convenience won’t be worth it if you’re dissatisfied with the service.

You might already be under manufacturer or builder warranty: Most new systems and appliances are under manufacturer’s warranty for anywhere within the first year to five years of the purchase date, depending on the cause of breakdown and what exactly broke. 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.

Consider adding equipment breakdown coverage to your homeowners policy

Equipment breakdown coverage is a coverage add-on, or endorsement, that you can add to your homeowners insurance policy to protect your appliances from mechanical or electrical breakdown. The great thing about equipment breakdown coverage is that — unlike with home warranties — there are few caveats.

All systems and appliances are covered against everything from improper installation to electrical failure. The only cause of breakdown that isn’t covered is age and normal wear and tear, which is something that is covered under a home warranty. Adding equipment breakdown coverage typically costs around an extra $25-$50 annually. 

How do you file a home warranty insurance claim?

Home warranty claims process works similar to homeowners insurance claims process. If a household system or appliance goes kaputt, you should contact your warranty company to file a claim. After being notified of a claim, the home warranty company sends over a service contractor to assess the damage and provide a report to the warrantor.

If the claim is approved, the warrantor sends out a contractor or technician to repair or replace the appliance. Your warranty company will then bill you a deductible, which is the fee that you have to pay out of pocket before the warrantor will cover the rest of the costs. Warranty deductibles are usually between $60 and $120 for the service.

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

  • $75–125 deductible

  • Monthly premium of $50–60

Select Home Warranty

  • Two optional add-ons

  • Covers up to 30 items

  • $85 deductible

  • Monthly premium of $36–44

Choice Home Warranty

  • Three optional add-ons

  • Covers up to 18 items

  • $75 deductible

  • Monthly premium of $36–38

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