How does a home warranty work? 2024 guide

As a homeowner, you want to protect your home from the unexpected. This especially rings true if you own an older home with aging major appliances and systems. A home warranty can provide peace of mind by reducing the cost of repairing or replacing your home items.

However, what exactly makes a company one of the top home warranty companies in the industry? How do they work? Why should you consider one? I found answers to all these questions by conducting thorough research and confirming everything with industry experts.

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What are the home warranty basics?

A home warranty sounds similar to home insurance, but it’s different. According to Angel Conlin, chief insurance and compliance officer at Kin Insurance, “A homeowners insurance policy pays for damages resulting from things like fire, theft and windstorms, but it doesn’t cover repairs if a system like your HVAC breaks down or an appliance malfunctions.”

Home warranties cover the cost to fix normal wear and tear of your major appliances and home systems. Companies offer various plans, coverage limits and add-ons to suit your needs.

A homeowners insurance policy pays for damages resulting from things like fire, theft and windstorms, but it doesn’t cover repairs if a system like your HVAC breaks down or an appliance malfunctions.

Angel Conlin

Plan choices

Home warranty companies offer plans covering home appliances, systems or a combination. Typically, most home warranty companies feature basic coverage plans and a comprehensive plan. Other than standard coverage, home warranty providers sell additional coverage options to supplement your plan selection.

Alongside major home system and appliance coverage, companies limit the amount they’ll pay for a covered item breakdown. These limits are called coverage caps. Companies list coverage caps per covered item in the fine print of your contract.

Premiums and service call fees

Home warranty providers charge a premium in exchange for coverage for your home appliances and systems. Many give you a monthly or annual option. Monthly premiums provide more digestible prices, although they usually aren’t discounted. You’ll pay a larger lump sum for a yearly premium. Some companies offer annual premium discounts or an additional month of coverage to encourage you to choose yearly payments.

Companies offer 12-month policy lengths as standard. You may be able to extend the length of your policy by requesting a multiyear plan.

The premium is one aspect of a home warranty’s cost. The other aspect is the home warranty’s service call fee. Think of the service call fee as a deductible. Companies charge a service fee each time you file a claim before sending a service technician.

When you sign up for a home warranty plan, the company assigns you a service call fee. Some companies provide customizable service call fees where you can choose how much it will be. You pay the fee before a service technician performs covered home repairs.

Claims process

The claims process begins once you submit a claim with your home warranty. While every company’s process varies, most follow these steps:

1. Receive your claim: This is the stage where the company receives your online claim submission or when you speak directly with a claims representative. Most companies require service call fee payment at this time. Others have you pay the in-network technician who is sent.
2. Review your claim: The company compiles and reviews all the information you provided.
3. Accept or deny your claim: Companies typically take several business hours to decide whether to accept or reject your claim.
4. Send a service provider: If the company accepts your claim, it searches for an in-network service provider near your home. Once the company finds a service provider, it schedules an appointment with you. Expect the service provider to arrive at your door within 24–48 business hours if you filed your claim during normal business hours.
5. Authorize repair or replacement: Once the service provider arrives at your home, they assess your problem and communicate with your home warranty provider. Once your provider authorizes the repair or replacement, the technician gets to work.
6. Close your claim: After the service technician completes their work, your home warranty company pays the technician for the repair costs up to its established coverage cap for the covered item. If the repair or replacement costs more than the cap, you’re responsible for the additional amount.

Workmanship guarantee

Once your home warranty company repairs your washer, water heater, septic system or other covered appliance or system, it provides a workmanship guarantee. A workmanship guarantee stipulates that the company will return and fix a previously repaired item if it malfunctions again within a set period. My research showed that the industry standard for a workmanship guarantee is 30 days.

I recommend reading through your home warranty’s fine print to find out how long its workmanship guarantee is. Additionally, you might prefer choosing a company with a plan-length workmanship guarantee.

How do you use your home warranty?

Before you can file a claim with your home warranty company, you must go through a waiting period. Providers usually establish a waiting period of 30 days to ensure your covered items don’t have preexisting conditions. After the waiting period, your company accepts claims until your home warranty contract ends.

How to file a home warranty claim

You should file a claim immediately once you notice a covered system or appliance malfunction. Many sample contracts I’ve read from various companies explicitly state to file a claim once you discover an issue. Delaying could result in a claim denial.

To file a claim, complete an online claim form or call your provider’s dedicated claims phone number. I spoke with Pierce Haley, Esq., the executive director of the National Home Service Contract Association (NHSCA), who gave tips on how to file a claim with your provider. Haley recommended taking pictures of your broken item, specifically the model number sticker on the item’s side or rear. Presenting this information to your provider can help speed up the claims process. The graphic below highlights nine popular home warranty companies’ claims approval rates based on our November 2023 home warranty survey results.

What to expect from technicians

After approving your claim, your provider sends an in-network technician to your door to repair or replace your issue. I interviewed several homeowners who have home warranty plans and found that most technicians schedule an appointment directly with you after receiving the claim.

Depending on where you live, there may not be in-network technicians near you who can fix your issue. In these cases, your home warranty company allows you to choose your own service technician. You need approval from the company before sourcing your own.

When disputes happen

In the event of a claims dispute with your home warranty company, there are several things you can do. According to Haley, you should first follow up and request an update on the status of your claim. If your company refuses to address your issue after your follow-up, Haley suggested submitting a complaint with the NHSCA. He also said, “There are consumer protection offices, such as the attorney general’s office, who can intercede for you.”

How do you choose the right home warranty?

Selecting the best home warranty company for your needs is easier said than done since dozens of companies offer similar coverage plans. I highlighted several factors below to help you determine which home warranty is right for you.

• Consider your coverage needs: Think about the type of coverage you need. For example, you’d benefit from a systems-only plan if you own new kitchen appliances, but your air conditioning system is old. Purchasing a comprehensive plan covering home appliances may overlap with your new appliances’ manufacturer’s warranties.
• Consider your budget: Home warranties can increase in price significantly based on the number of coverage options you add. The plan premium is only part of the equation. I suggest estimating how many claims you’ll file and multiplying that number by your service call fee. For example, say the company you’re interested in offers a $100 service call fee. If you estimate you’ll file two claims, multiply two by $100, which equals $200. Then, add that number to your plan premium. Knowing how much you’ll pay to use your home warranty can give you a better idea of the total cost of owning it.
• Check company licensing: Your state’s consumer protection agency provides a database where you can look up a home warranty company’s business license. While researching companies, enter a business name into the database and confirm whether that company is authorized to do business in your state. I recommend considering a different company if the company’s license doesn’t appear in the search results.
• Read the sample contract: My final recommendation, which gets overlooked regularly, is reading a company’s sample contract. The sample contract outlines the company’s exact coverage terms and exclusions. Knowing what it does and doesn’t cover can help you avoid a denied claim.

Final take: Home warranties are a solid investment, although not for everyone

Based on my industry research, conversations with experts and in-depth review of more than a dozen home warranty providers, I believe a home warranty plan is a worthwhile investment. There are several pros, such as reducing the financial burden of appliance or system repairs and getting the convenience of your company finding a reputable technician for you. However, home warranties have strict coverage exclusions. They also cost roughly the same per year as a new major appliance.

The real value of a home warranty is when multiple appliances or systems break down within the same year. Instead of paying for both replacements, you only pay a service call fee, and your home warranty covers the rest.

I recommend a home warranty if you’re a new homebuyer purchasing an older home or an existing homeowner who owns aged appliances and systems. If you recently bought major appliances and systems, I suggest waiting until the manufacturer’s warranties expire before considering a home warranty.