What Is a Home Warranty? Cost and Coverage in 2024
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A home warranty is an annual plan that pays for replacements and repairs of some of your home's major systems and appliances. You’ll pay an annual fee that can range from a few hundred dollars to over $1,000 depending on your plan and a service fee when a technician comes to your home to evaluate an issue.
Although they can give homeowners peace of mind during the homebuying process, homeowner warranties are never a replacement for home inspections.
For you to get the most out of a homeowner warranty, it's important to read the fine print so you understand what's covered and how the plan works before signing up.
How does a home warranty work?
These are the basic steps for how a home warranty works when something breaks.
When a covered item in your home breaks down, you contact your home warranty provider and submit a claim.
The company schedules a technician appointment with one of its third-party repair companies. Many try to schedule within 48 hours, but it might take longer.
A technician visits your home to diagnose the problem. The repairperson determines if you need a repair or replacement and submits a report to the home warranty company.
Your home warranty provider reviews the report and approves or denies your claim. If it's covered, the company will pay the technician to repair the item. If the problem isn't covered by the warranty — because the item, component or reason it broke down isn't part of your plan — you'll have to cover the cost yourself. You'll be on the hook for the cost of the technician's visit even if your claim is denied.
Home warranty companies generally deny claims for system or appliance failures that predate the start of the contract. In other words, if you're buying a home and an issue comes up during the inspection or in the seller's disclosures (or if a problem that wasn’t disclosed surfaces later), your warranty likely won’t cover it. Rather than relying solely on a warranty, consider negotiating with the seller to either fix the issue or give you a credit to fix it yourself.
What does a home warranty cover?
Home warranties cover repairs for appliances and systems when they break from normal wear and tear. They can also pay for replacements if a covered item can’t be fixed. A homeowners warranty differs from a standard manufacturer warranty because it covers a range of items instead of just one item.
System plans cover major home systems, including heating and cooling, electrical and plumbing.
Appliance plans cover major appliances, like the dishwasher, oven and washing machine.
Combination plans include major systems and appliances. These are sometimes offered in tiers, with the more expensive plans offering a greater range of coverage.
Home warranty companies may or may not cover some items, such as in-ground sprinklers, swimming pools and septic systems, or the company might require you to get additional coverage for those items. When comparing plans, make sure the options include everything you want to cover.
Good to know! The term “home warranty” is a misnomer because it’s not actually a warranty – it’s a service contract, according to the Federal Trade Commission. Likewise, homeowner warranties are not insurance policies, according to the Office of the Attorney General for the District of Columbia. For example, your homeowners insurance might cover structural aspects of your house (such as the floor and walls) when they are damaged by a major event, such as a storm or fire, whereas a home warranty won’t cover these items.
A homeowner’s warranty may have a coverage limit, which means the company will only pay so much toward an item’s repair or replacement.
Home warranties vary on how much they’ll pay for a technician to access covered systems. For example, if you have a plumbing problem that is accessible only through the wall, a standard contract from American Home Shield may pay up to $1,000 for a technician to repair the wall to a rough finish (a rough finish is not guaranteed to match the rest of the wall). You would have to pay any remaining costs to fix the wall.
Typically you have to wait 30 days after buying your home warranty for coverage to kick in.
» MORE: Are home warranties worth it?
Heard It from a Nerd! Taylor Getler, one our home and mortgage experts, weighs in on home warranties, including common coverage, cost and what to look for when comparing plans.
What isn’t covered by a home warranty?
Home warranties often won’t cover:
Issues that are the result of human error, improper maintenance or natural disasters. If wildfires, earthquakes, floods, hurricanes or tornadoes are common in your area, consider getting event-specific insurance to cover disaster-related losses. Examples are flood or windstorm policies
Regular maintenance. However, some companies offer coverage for specific maintenance tasks, such as HVAC tune-ups.
Pre-existing conditions or failures caused by improper installation or modification.
Certain situations or parts. For example, if you have a plan with Liberty Home Guard, the company will cover the cost of fixing drain clogs but only if they can be cleared with certain equipment. If a plumber can’t clear a clog using certain tools, the company won’t pay to fix the problem.
How much does a home warranty cost in 2024?
Here’s what you can expect to pay for a home warranty:
Monthly fee: About $58, per month, according to NerdWallet’s analysis. Plans often range from about $20 per month to about $120 per month, depending on the company, coverage and the property location.
Service fee: As high as $150 or more for every service call, even if the company denies your claim. If you have several claims throughout your service agreement's term, you could pay several hundred dollars on top of your premiums.
It’s also smart to consider how coverage limits will affect the cost of your home warranty. For example, if your plan limits coverage for HVAC repairs to $1,000 and you think your system might need repairs that cost more than that, research how much you’ll end up paying for the repair when you reach your coverage limit. Additionally, exclusions can also increase the cost of your home warranty if you’re left to cover the cost of a denied repair.
» LEARN MORE: How much does a home warranty cost?
How to choose a homeowner warranty company
In addition to shopping around for a home warranty company based on cost, you may want to consider these factors when comparing plans:
Expected repairs. Does the plan cover repairs that you anticipate needing during its term? Review the service agreements for each plan you’re considering to see if the appliances or systems you are most likely going to need to repair will be covered. Look for any exclusions that might affect coverage.
Coverage limits. How much will a plan pay toward repairing each type of item? Check the service agreement or plan descriptions to find any coverage limits. Compare these amounts to different types of repairs for the covered appliances and systems. Are the coverage limits reasonable or too low to cover potential repairs for your items?
Coverage exclusions. Which types of repairs are excluded from the service agreement? Read the service agreement carefully, especially any sections titled “Exclusions” or “Limits of Liability.” These sections often list the types of issues or causes that will lead a home warranty company to deny a claim.
Waiting period. How long is the waiting period before coverage begins? This is usually stated in a service agreement and in the FAQs on companies’ websites. Generally, home warranty companies require you to wait 30 days before submitting a claim.
Customer satisfaction. What is the company's customer satisfaction rating? YOu can get an idea by reading reviews on websites like the Better Business Bureau, Yelp and Consumer Affairs. And you can search for any warnings or investigations that have been issued by state officials. For example, attorneys general have published formal complaints against specific home warranty companies for using deceptive tactics to refuse valid claims.
Alternatives to a home warranty
If you’re unsure if a home warranty is the way to go, there are a few alternatives you can consider:
Set aside money for home repairs and maintenance in a dedicated savings account. This ensures the money you save will be used on repairs instead of a home warranty premium that you’d pay even if you didn’t file a claim. To help your home maintenance fund earn interest, consider putting it in a high-yield savings account.
Register your systems and appliances for manufacturer warranties if they are still within the timeframe for one to apply.
Check the extended product warranties to continue coverage after a manufacturer warranty expires. This allows you to ask for repairs beyond the free manufacturer warranties.
See if a credit card purchase extends coverage if you purchased the item with your credit card. For example, borrowers with an American Express Platinum account can receive up to $10,000 to recover losses up to one year after the original warranty expires.
» CHECK IT OUT: NerdWallet's best home warranties in California and best home warranties in Texas
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