How To Buy a Home Warranty

How To Buy a Home Warranty

If you own a home or are about to purchase one, you should know there's always a risk that an appliance will fail or a major system, like your electrical, plumbing, or heating, ventilation, and air conditioning (HVAC), will need repairs. Big-ticket repairs and replacements can blow your budget, but a home warranty can help reduce the risk and provide some peace of mind.

“A home service contract is part of an overall program for your home,” says Art Chartrand, executive director and counsel for the National Home Service Contract Association (NHSCA). When buying a home warranty, Chartrand says, “Be a smart consumer. Don’t be sold a home warranty — purchase one.” This means thinking carefully about what protection you actually need.

A home warranty works differently than homeowners insurance, which covers damage from perils, like fire, hail, wind, vandalism, and other events that are out of your control. By contrast, a home warranty covers repairs to or replacements of specific items in your home, which may come in handy if your appliances and systems are older or no longer have valid manufacturer warranties.

Your home warranty will cover only what's specifically named in the contract. Anything not explicitly stated in the contract is not included. The fine print explains exactly what appliances and systems are included and what repairs and replacements are offered. From that, you can decide if that warranty offers the coverage you need.

If you’re not sure if you actually need a home warranty, visit Are Home Warranties Worth It?

Steps to Buying a Home Warranty:

1. Determine your coverage needs. Does your home have older appliances that will require repairs soon? Do you still have active manufacturer warranties to cover repairs? What's the condition of your major systems like the furnace, air conditioner, and water heater?

“Start by knowing what you have,” says Wesley Butts, chief operating officer at America’s First Choice (AFC) Home Warranty. “How likely are your appliances or systems to fail? How old are they? Gauge if it’s worth insuring with a home warranty. If you have manufacturers’ warranties, you won't necessarily need coverage.”

2. Contact several reputable home warranty companies for quotes and coverages. “Don’t just look at the companies that pop up on a Google search,” says Annie Hanna Engel, president and chief operating officer at Howard Hanna Insurance Services. “Talk to consumers who have home warranties and get recommendations from them.”

Realtors are a helpful resource because they often partner with home warranty companies to provide coverage to buyers and sellers. Chartrand says two-thirds of home warranties are purchased in conjunction with a home sale. “Your realtor knows which warranty companies pay claims and take care of their customers,” he says.

3. Read the fine print. Regarding coverage, take your time and read carefully to determine if a particular home warranty is worth it. “Read the contract you're about to enter into and make sure you understand what's being offered,” Engel says.

One common mistake consumers make when buying a home warranty plan is overlooking the terms and conditions. “People assume that items are covered versus educating themselves,” Butts says, noting that some warranty companies describe coverages on a “what is covered” page on their websites. “When people complain, it’s because they didn’t understand what they purchased or what someone purchased for them.”

Do I Need a Home Warranty?

To determine if you need a home warranty, consider the age and condition of your home’s appliances and systems. The warranty will help fix or replace covered items, but there are limits. Keep in mind that a home warranty won't cover pre-existing wear and tear or cosmetic issues. And if your appliances are brand-new and covered under manufacturers’ warranties, you won't be able to use a home warranty to pay for repairs.

You should also take inventory of your home’s systems. “Know what's in the home and what could potentially fail,” Butts says. “Understand the cost of repairing or replacing each item, and determine if a home warranty can cover those and how a policy could help you in the event of a breakdown.”

Our page Are Home Warranties Worth It? provides more in-depth information and weighs the costs and benefits of the purchase.

Homebuyers might want a home warranty because the policy can add a layer of protection and provide peace of mind. Home sellers should consider purchasing warranties that cover items that could potentially break while the home is listed or under contract, but before a buyer takes possession. “You are responsible for maintaining the property as it was when the offer was made and agreed upon, so you have the ability to utilize those coverages if necessary,” Engel says.

To read more about buyers’ and sellers’ home warranty options, read our page on Buyers’ vs. Sellers’ Incentives to Buy a Home Warranty.

As you consider purchasing a home warranty, keep in mind that it is separate from homeowners insurance. While home warranties cover select appliances and systems that need repairing or replacing due to everyday wear and tear, homeowners insurance covers both your home and belongings should the unexpected happen, like a fire or theft. Home warranty coverage is not insurance.

Our page Home Warranties vs. Homeowners Insurance provides more detail on the difference between the two services.

What Does a Home Warranty Cover?

A home warranty provides service, repair, or replacement of a home’s major systems and appliances. It provides extra protection in case something goes wrong with a big-ticket item in the home.

However, there are exceptions to be aware of when reviewing what is and is not covered by your plan.

Appliances and systems typically covered in a home warranty:

Additional coverages that might cost extra in your home warranty:

Your home warranty will not provide coverage for:

The fine print will explain all exclusions and terms. For example, home warranty companies place charge limits on claims, and you’ll often be required to wait 30 days from the sign-up date to place a service request. So, if you have a repair in mind the day you buy a home warranty, don’t expect to make a warranty claim immediately.

For more information on what to expect from your home warranty plan, read our guide What Does a Home Warranty Cover?

How Much Does a Home Warranty Cost?

The home warranty plans in our rating range in price for the most comprehensive plans, starting at $480 and going up to $839 per year. Service fees range from $60 to $150 per visit. However, the plan you choose will determine what services you have and how much you pay.

The following factors may affect the cost of your home warranty:

The key is to compare similar plans to find out what you’re getting for the price. Visit our How Much Does a Home Warranty Cost page to learn more about costs and services.

When Can I Buy a Home Warranty?

You can buy a home warranty at any time. Most often, home warranties are purchased at the time of a home purchase. A seller might offer a home warranty to the buyer as peace of mind if appliances and systems are aging, or it can be a value-added extra to make a real estate deal more attractive. “It’s beginning to be a tool for sellers,” says Jay Rinehart, National Association of Realtors president and CEO of Rinehart Realty Corporation in South Carolina. Some home warranty companies offer specific plans for sellers to cover repairs or replacements of large items.

If your home’s appliances no longer have manufacturers’ warranties, now might be the time to consider a home warranty plan to help pay for service, repairs, or replacement. But there are coverage limits, so if you expect to replace an appliance with an upgraded model, find out how much the warranty company will reimburse you.

Home warranty companies sell warranties directly to the public. In addition, real estate brokers often have relationships with home warranty providers and sell the policies to their clients. Some home inspectors might also offer a warranty. For example, inspectors associated with the International Association of Certified Home Inspectors can offer an American Home Warranty product to their clients.

The bottom line is that you can purchase a home warranty whenever you wish, no matter the age of your home, the appliances and systems inside, or how long you've lived there.

What Should I Look for in a Home Warranty Company?

Although many national companies offer home warranties, some might not be equipped to fully service your claims. How do you know whether a company is any good? First, find out whether it has brick-and-mortar offices and a true call center, Chartrand says. “You don’t want to work with a cloud-based company operated by someone from their apartment,” he says.

The NHSCA has a home warranty accreditation program, and member companies 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, Butts suggests.

Find out whether the home warranty company has claims offices in your area, and ask a realtor about his or her experience with them. “The company might not have a great claims office in the north, but they could have a phenomenal claims office in the southeast,” Rinehart says. “Claims departments can be very regional.”

Compare coverage and ask a realtor about the home warranty company’s claims reputation. “Realtors know which companies pay claims and take care of their customers,” Chartrand says.

What Are Mistakes to Avoid in Buying a Home Warranty?

One of the biggest mistakes consumers make when buying a home warranty is not reading the fine print. “People assume that items are covered when they're not,” Butts says. Another common mistake is assuming that every part of an appliance is covered. Sometimes this isn’t the case. For example, refrigerator coverage often excludes the ice maker.

Another mistake is expecting the product to work like homeowners insurance. A home warranty specifically covers breakdowns of systems and appliances, while homeowners insurance covers your entire home in case of an unexpected peril like fire, wind, hail, vandalism, or theft. So, if your air conditioner is damaged by hail during a storm, your home warranty won't cover repairs or replacement, but your homeowners insurance might.

Some consumers overlook the charge limits on home warranties. Be sure to review this information in the fine print so you understand how much the home warranty company will cover for service, repairs, and replacements.

Probably the most common mistake is not understanding what the warranty includes. “Don't buy a home warranty without knowing if it fits your needs and provides quality coverage,” Butts says.

Purchasing a Home Warranty

When you contact a home warranty company for a quote, begin with the basics and find out the cost, coverage, and contract terms. Follow these steps before you decide on a home warranty:

1. Determine your coverage needs

For example, if your furnace is nearing the end of its life, you might purchase a home warranty that only covers systems. If your appliances are fairly new, they’re probably still covered by the manufacturer’s warranty, so it doesn’t make sense to purchase a more comprehensive plan.

2. Determine if you need additional coverages  

Additional coverages can include the following:

Home warranties are “contracts of inclusion,” Chartrand explains. This means that whatever is included in the contract is what the home warranty covers. This is different from homeowners insurance, which covers everything except what it specifically excludes. Think carefully about what other items in the home might need repairs or replacements down the line.

3. Consider the age and condition of your home

A home warranty can connect you to a network of service professionals if you file a claim, and you won’t have to spend time hunting down the best person to fix a problem. “If you’re moving to a new area and you don't have a plumber or electrician to call, a home warranty can give you a bank of vendors who have agreed to do the warranty work,” Rinehart says.

4. Consider the cost 

The average cost of a basic home warranty costs $400 to $550 per year. Service calls usually cost $60 to $100. Some companies will return all or a portion of the trade service fee if a professional doesn't arrive within a specific amount of time, such as within 30 or 60 days.

5. Read the contract terms 

A typical home service contract offers coverage of named appliances and systems for a one-year term. However, some two- and three-year home warranties are available, and you can continue renewing your warranty for as long as you wish. “There are a base of clients who keep warranties for five or 10 years or longer, and they use them on a regular basis when issues come up,” Rinehart says.

Ultimately, the fine print explains the real value you’ll get from your home warranty. So beware of policies with extensive limitations and restrictive terms.