A home warranty is a service contract that covers repair or replacement of major systems and appliances, but it is not the same as homeowners insurance

A home warranty is a contract you buy that pays to repair or replace things like your furnace, water heater, electrical system, plumbing, and kitchen appliances when they break down from normal wear. It is not insurance — it does not cover damage from storms, theft, or accidents. Insurance covers those. A warranty covers the things that just stop working because they are old.

You pay a yearly fee (usually $400 to $900, depending on what the plan covers) and then a service call fee (typically $50 to $150) each time you make a claim. The warranty company sends a contractor to fix or replace the item. If the repair costs more than the plan's limit for that item, you pay the difference. If it costs less, you pay only the service fee.

Warranties are sold by private companies, not government agencies. The most common providers are American Home Shield, Choice Home Warranty, First American Home Warranty, and Old Republic. Each has different coverage limits, exclusions, and service call fees, so the contract you sign matters more than the brand name.

Key Takeaways

  • Home warranties cover repair or replacement of major systems and appliances due to normal wear and tear, but homeowners insurance covers damage from storms, accidents, and theft.
  • You pay an annual premium ($400 to $900 typically) plus a service call fee ($50 to $150) each time you file a claim, and the warranty company pays the rest up to the plan's limit.
  • Warranties have coverage limits per item and exclusions for pre-existing damage, lack of maintenance, and systems already broken when the contract starts.
  • Older homes and homes with aging appliances may see faster payback on warranty costs, while newer homes with recent systems may not recoup the yearly fee.
  • You can buy a warranty when you purchase a home or at any time after, but coverage does not start until 30 days after purchase in most cases.

What is actually covered under a typical home warranty plan

Most home warranty plans cover the same core items: heating and cooling systems, water heaters, plumbing (interior lines and fixtures), electrical systems, kitchen appliances, and sometimes washer and dryer. Some plans add coverage for pool equipment, septic systems, or garage door openers for an extra fee. Read the contract to see the exact list for the plan you are considering.

Coverage limits matter. A plan might cover a water heater replacement up to $1,500, but if the replacement costs $2,200, you pay the $700 difference. Limits vary by plan and by item — the same company might cap furnace replacement at $2,000 but water heater replacement at $1,500. The contract lists these limits for each covered item.

Exclusions are equally important. Most warranties do not cover damage from lack of maintenance (a furnace that failed because the filter was never changed), pre-existing problems (a leak that existed before the contract started), or systems that were already broken when you bought the warranty. Some plans exclude certain brands or very old equipment. A few exclude items in rental properties or homes over a certain age.

How the claims process works and what to expect for timing

When something breaks, you call the warranty company's customer service line. You describe the problem and provide your contract number. The company dispatches a contractor from its network — you do not choose the contractor, and the company does not pay for you to call your own. The contractor comes to your home, diagnoses the problem, and either repairs it or recommends replacement.

If repair is possible and costs less than the plan's limit for that item, the contractor does the work and you pay the service call fee. If replacement is needed, the contractor orders the part or new unit and installs it. You still pay only the service call fee, and the warranty company pays the rest up to the limit. If the total cost exceeds the limit, you pay the overage.

Timing varies. Emergency calls (heating in winter, cooling in summer) are usually scheduled within 24 to 48 hours. Non-emergency repairs may take a week or longer depending on contractor availability and parts availability. Some warranty companies may provide response time in their contracts; others do not. Check the contract before you buy.

When a home warranty makes financial sense

A warranty pays for itself fastest in older homes where major systems are nearing the end of their lifespan. If your furnace is 15 years old, your water heater is 12 years old, and your electrical panel is original to a 1970s house, one major repair could cost $3,000 to $5,000 — far more than a year of warranty premiums and service fees. In that scenario, a warranty can protect you from a single expensive month.

Warranties also make sense if you are house-poor — you have little savings left after buying the home and cannot absorb a $2,000 emergency repair. The predictable cost of a warranty premium is easier to budget than an unexpected major repair.

Warranties usually do not make financial sense in newer homes (built in the last 5 to 10 years) where systems are still under manufacturer warranty and unlikely to fail soon. You would pay $400 to $900 per year for coverage you probably will not use. Do the math: if your home is new and all systems are recent, you would need to file two or three claims per year just to break even.

The difference between home warranties and manufacturer warranties

When you buy a new appliance or system, it comes with a manufacturer warranty that covers defects in materials or workmanship for a set period — usually 1 to 5 years depending on the item. The manufacturer or an authorized dealer handles the repair or replacement at no cost to you during that period.

A home warranty is separate. It covers the same items after the manufacturer warranty expires, or it can cover items whose manufacturer warranty has already ended. If your refrigerator is 8 years old and breaks, the manufacturer warranty is long gone, but a home warranty would cover the repair or replacement (up to the plan's limit).

Some people buy a home warranty specifically to extend coverage beyond what the manufacturer provides. Others buy it to avoid the hassle of tracking which appliances are still under warranty and which are not. The warranty company handles all the claims; you do not have to contact the manufacturer or an authorized dealer.

How to compare plans and what to look for in a contract

When comparing home warranty plans, look at these details in the contract itself, not just the marketing materials:

  • Coverage list: Does it include the systems and appliances you actually have? A plan that covers a pool heater is useless if you do not have a pool.
  • Coverage limits per item: What is the maximum the company will pay for a furnace replacement, water heater replacement, or electrical repair? Is it enough for your area?
  • Service call fee: Is it $50, $100, or $150? This is what you pay out of pocket each time you file a claim.
  • Exclusions: Does it exclude pre-existing damage, lack of maintenance, or homes over a certain age? Does it exclude certain brands?
  • Response time may provide: Does the contract promise a contractor will arrive within 24 hours, or is there no may provide?
  • Waiting period: Most plans have a 30-day waiting period before coverage starts. Some have longer waits for certain items.

Read the actual contract before you buy, not just the summary sheet. Call the company and ask about claims you think you might file — ask what the contractor would charge for a furnace replacement in your area and whether the plan's limit would cover it. Ask whether the plan covers your specific furnace model or brand.

When you can buy a warranty and how to cancel if you change your mind

You can buy a home warranty at any time — when you close on a home purchase, months or years later, or even if you are renting. There is no important date. However, most plans have a 30-day waiting period before coverage begins, and some have longer waits for specific systems (like HVAC). This means if your furnace breaks on day 15 of your warranty contract, the warranty will not cover it.

Some home warranty companies offer a money-back may provide if you cancel within a certain period — often 30 days. Read the cancellation terms in the contract. If you are not satisfied after the first month, you may be able to get your premium refunded. After that period, cancellation usually means you lose the premium you paid, though you can cancel anytime without penalty going forward.

If you sell your home, the warranty typically does not transfer to the new owner unless the contract allows it. Check your contract to see whether you can transfer coverage or whether it ends at closing.

Frequently Asked Questions

Does a home warranty cover damage from storms or accidents?

No. Home warranties cover only failures from normal wear and tear. Damage from storms, flooding, fire, or accidents is covered by homeowners insurance, not a warranty. If a tree falls on your roof or lightning strikes your furnace, file a claim with your homeowners insurance, not your warranty company.

What happens if the contractor the warranty company sends does poor work?

The warranty company is responsible for the quality of work done by its contractors. If you believe the repair was done incorrectly, contact the warranty company's customer service and request an inspection or a second opinion. Most companies will send another contractor to evaluate the work. If the first repair failed, the company should cover the second repair at no additional service call fee.

Can I use my own contractor instead of the one the warranty company sends?

Most home warranty plans do not allow you to choose your own contractor. The company dispatches from its network to control costs. Some plans offer an exception if you request it in advance and the company approves, but you will likely pay more out of pocket. Check your contract to see whether this option exists.

Will a home warranty cover a system that was already broken when I bought the plan?

No. Warranties exclude pre-existing damage — problems that existed before the contract started. If you buy a warranty and then discover your water heater is leaking, the warranty will not cover it because the damage predated the contract. This is why some people buy a warranty before closing on a home purchase, so coverage starts fresh.

How much does a home warranty cost per year?

Annual premiums typically range from $400 to $900, depending on what the plan covers and where you live. Service call fees range from $50 to $150 per claim. Some companies offer discounts if you pay annually instead of monthly, or if you bundle multiple properties. Get quotes from at least three companies before deciding.