How Does a Home Warranty Work?

A home warranty covers service, repair, or replacement of your major home systems and appliances. It provides a financial buffer in case of a big-ticket item malfunction, and it can extend the protection of manufacturers’ warranties after they expire. The warranty company connects you with its affiliated contractors, so you can make one call for any problems with an appliance or system that’s covered by your plan and don’t need to find individual contractors on your own. A home warranty can also provide an allowance to help pay for replacement items.

A home warranty is a consumer convenience product that you can purchase to mitigate the risk of incurring major out-of-pocket expenses if an appliance or system fails. A home warranty isn’t the same as homeowners insurance, which serves a different purpose. In general, homeowners insurance covers property damage from perils such as fire, theft, hail, wind, and vandalism. It also covers liability for injuries to guests on policyholders’ property.

By contrast, a home warranty covers appliances and systems that malfunction and aren’t covered by homeowners insurance or a manufacturer’s warranty. At any time, no matter the age of your home or its condition, you can purchase a home warranty directly from a home warranty company. But most often, home warranties are purchased during a real estate transaction, either by the seller as an incentive for the buyer to close the deal or by the buyer for peace of mind.

Ultimately, a home warranty is part of an overall protection program for your home, says Art Chartrand, executive director, and counsel for the National Home Service Contract Association (NHSCA). If an issue arises with an appliance or system that’s named in the contract, you can submit a service request, and the home warranty company will dispatch a contractor to diagnose, repair, and possibly replace the item. You pay a service fee that ranges from $30 to $125. The warranty company can decide to replace the item with a comparable alternative or provide a cash settlement based on the warranty company’s charge limits.

Your home warranty will cover only what’s specifically named in the contract. Some home warranties cover appliances, while others cover major systems like heating and air conditioning. More comprehensive warranties cover both. You can purchase add-ons for a home warranty to cover smaller items like a sump pump, well pump, or septic tank.

Ultimately, the best home warranty is one that meets your coverage needs based on the age and condition of your appliances and systems.

Home warranties are worth it if your appliances no longer have manufacturers’ warranties, and if you want to reduce the out-of-pocket cost of repairing or replacing expensive items like a refrigerator, water heater, air conditioner, or furnace. A home warranty also can be a good idea if you’re selling your home and want added financial protection in case an item breaks down before closing. Also, a home warranty is worthwhile if you’re buying a home and want something that will help cover unexpected repair and replacement costs after you move in. The upshot is that if you own a home, there’s a good chance you could put a home warranty to use. According to the NHSCA, people with home warranties file an average of 1.5 claims per year.

However, there are reasons why some feel home warranties aren’t worth it. “There’s a cost to manage risk,” says Nick Gromicko, founder of the International Association of Certified Home Inspectors. “That cost is exorbitant when it comes to home warranties. If you buy homeowners insurance for your house and it burns to the ground, or if you have car insurance and you total your vehicle, those are costs that would be difficult to manage out-of-pocket. But as you go lower on the scale with items in your home, it becomes mathematically worse for you to purchase a warranty.” Chartrand also notes that you shouldn’t “expect to buy a home warranty to get 10 times your money back.” In other words, it won’t provide a windfall that allows you to upgrade an appliance or system.

Home warranties are adding convenient benefits to their plans. Some include HVAC maintenance or a rekeying service so homebuyers can change the locks. “Those are two benefits we’re seeing in home warranties that are great for consumers,” says Annie Hanna Engel, president, and chief operating officer of Howard Hanna Insurance Services.

The bottom line: a home warranty can minimize the out-of-pocket expense of fixing or replacing big-ticket items that you might not have factored into your budget. It also can provide peace of mind and a single access point to local contractors.

A home warranty covers service, repair, or replacement of major home appliances and systems. It covers only what’s named in the contract, and it lists exclusions that are the consumer’s responsibility. Those might include the icemaker or beverage dispensers in a refrigerator, pool and spa equipment, and specific components of appliances. It’s important to read the fine print so you’re not unpleasantly surprised when it turns out that something you thought was covered actually isn’t.

You can purchase a home warranty that covers only appliances or only systems, and some plans are designed for specific items. For example, if you have manufacturers’ warranties on your refrigerator and dishwasher, but not the clothes washer or dryer, you might opt for a plan that protects those items.

Typically, a home warranty will also cover major home systems such as:

  • Electrical
  • Ductwork
  • Heating
  • Interior plumbing
  • Water heater

These appliances are typically covered in a home warranty:

  • Air conditioning (sometimes optional)
  • Dishwasher
  • Garage door opener
  • Garbage disposal
  • Pool equipment (optional)
  • Oven, range, or cooktop
  • Refrigerator (sometimes optional, may exclude ice maker)
  • Spa equipment (optional)

How Long Does a Home Warranty Last?

A typical home warranty lasts for a year with an option to renew. Some providers offer month-to-month coverage, and others offer extended warranty periods. For example, some of the top warranty companies we rated to offer 24- and 36-month plans.

Review your home warranty coverage annually, because what worked for you last year might not be sufficient for the future. For example, the manufacturer’s warranty for an appliance might be about to expire, or your air conditioning unit might be on its last legs. Also, consider adding coverage for items that you recently purchased. Your home warranty plan should evolve to meet your current needs.

When buying a home warranty, take inventory of your appliances and systems — the big-ticket items in your home that can be costly to repair and replace. Consider their age and condition. When were these items last serviced? Are there pre-existing conditions that caused previous breakdowns and could preclude coverage of a future related mechanical failure?

The pre-existing conditions issue is tricky because if an appliance came with the house when you bought it, you might not be aware of its service history. To avoid surprises, consider a home warranty that requires a home inspection. This will provide documentation of any pre-existing conditions and let you know what issues might not be covered in the future.

Also, consider what you’d pay to repair or replace appliances and systems yourself. If you can afford these costs for a particular item, you probably don’t need coverage for it. And remember that a home warranty won’t always cover an entire repair or replacement; companies set charge limits, such as $1,500 toward a refrigerator.

Another consideration is who will be working in your home. If you’re particular about the contractors you use, check the home warranty contract to see if you can request specific individuals.

Finally, look for a home warranty company with claims offices in your area and review the company’s accreditations. For example, member companies of the NHSCA must comply with state regulations and have a call center available 24/7. Also, refer to the Better Business Bureau for company reviews and information. Realtors are another great resource and typically partner with home warranty companies so they can offer the products to their clients. Ask which companies are responsive and handle claims smoothly.

The average cost of a one-year home warranty is $550, according to the NHSCA. Read the fine print to understand the exclusions, service visit fees, and charge limits. As with many products, you can buy home warranties with different levels of coverage, so don’t expect a Cadillac plan for a low price tag. “If you can buy a warranty for $15, it’s not going to cover anything,” Gromicko says.

The most comprehensive home warranty plans from the companies we rated cost $510 to $675. As for service fees, those can range from $30 to $125. Some home warranty companies charge more for service fees but less for the annual home warranty plan.

If you’re looking for a discount on a home warranty, some companies will charge less if you pay for an entire year upfront instead of opting for monthly installments. Alternatively, a warranty company might offer a bonus month for the same price as a year-long plan if you pay in full.

Are Home Warranties Tax Deductible?

If you buy a home warranty for your primary residence, it isn’t tax-deductible on your federal return. The same is true for homeowners insurance. However, if you use a part of your house for a home office, you can deduct a portion of the home warranty. And, if the home is a rental property, the IRS allows a deduction for the home warranty.

Who Shouldn’t Get a Home Warranty?

If your appliances still have active manufacturers’ warranties, you won’t need a home warranty for those items. In fact, home warranty companies state in their contracts that items already covered by manufacturers’ warranties are excluded from their plans. Moreover, if you know an appliance or system is malfunctioning, was improperly installed, violates code, or hasn’t been properly maintained, a home warranty won’t cover repairs for those items.

A home warranty is beneficial for those who want financial protection in case appliances and systems malfunction when used as directed and after incurring typical wear and tear. Essentially, if a covered appliance that was in good working order stops working unexpectedly, a home warranty can reduce the out-of-pocket expenses you’ll pay to diagnose and repair or replace it.

How U.S. News Evaluated Home Warranty Companies

We explain what matters most to consumers, experts, and professional reviewers when it comes to home warranties. Then we provide an unbiased evaluation of home warranties available at the time of review. Our goal is to empower consumers with the information and tools they need to make informed decisions. More information about our 360 Reviews methodology for evaluating home warranty companies is here.

U.S. News 360 Reviews takes an unbiased approach to our recommendations. When you use our links to buy products, U.S. News 360 Reviews may earn a commission but that in no way affects our editorial independence.