Need extra protection for your systems and appliances? Here’s how to buy a home warranty

Key points

• Determine which appliances or home systems are vulnerable to failure and might need coverage.

• Analyze your budget to figure out whether a home warranty makes financial sense.

• Choose a home warranty provider that offers the coverage you need at a price you can afford.

Before you buy a home warranty plan, you’ll need to conduct rigorous research. Seek to answer the following questions:

• Which systems and home appliances need coverage? 
• How much can you afford in monthly or annual premiums? 
• Which home warranty providers are reliable? 
• Are there any hidden costs?

Homeownership presents its share of challenges, including unexpected repair costs. A home warranty provides a financial cushion for the high expenses associated with appliance and system malfunctions. 

With careful planning and consideration, buying the best home warranty for your needs can save you money and hassle. 

What is a home warranty?

Also known as a home service contract, a home warranty covers the repair or replacement of appliances and home system components that fail over time. It is intended to supplement or replace an expired manufacturer’s warranty.

Here’s how a home warranty works: The policyholder pays the home warranty provider monthly or annual premiums, along with a service fee for each job performed by a technician. In return, the provider agrees to pay a certain amount of money toward repair or replacement of appliances, systems or other components within the home.

In most cases, the home warranty provider assigns a technician to make the service call. Some companies allow the consumer to choose the technician.

How is it different from homeowners insurance?

Both home warranties and home insurance give consumers peace of mind against unexpected expenses related to homeownership, but the two types of protection differ significantly.

Home insurance typically covers loss related to fires, storms, theft or other major damage.

A home service contract covers specific items, such as kitchen appliances or systems, including HVAC and plumbing.

How do you choose a home warranty?

First, determine which systems and appliances in your home need coverage, such as air conditioning, electrical systems, clothes washers and dryers, water heaters and refrigerators. Take this step first so you can narrow your choices of coverage options and home warranty plans.

Next, assess your budget. How much can you afford to pay in monthly or annual premiums? Knowing this will enable you to match your needs and budget to the prices you receive as you request quotes from the best home warranty companies.

Finally, consider only home warranty companies that maintain a good reputation in the industry. Pierce Haley, executive director of the National Home Service Contract Association, recommends starting online with consumer reviews and then seeking word-of-mouth recommendations.

“You can find one that’s a local, you can find one that’s a national company, but the bottom line is read your contract,” Haley said. “Check with the Better Business Bureau to see if there are complaints against those companies, and then also talk to your friends and neighbors to find out what companies they use and which ones they’ve gotten a great experience from.”

You can find one that’s a local, you can find one that’s a national company, but the bottom line is read your contract.

Pierce Haley

Haley also recommends contacting the provider directly and asking, “Is there anybody in my neighborhood or in my town that has an existing contract that I can call and ask how they feel that the service has been?”

Also, check the provider’s dedicated Better Business Bureau (BBB) webpage. BBB allows you to search for home warranty providers by letter rating. Start with A-rated companies, and if you don’t find one that matches your needs and budget, then try B-rated providers.

When is the best time to buy a home warranty?

The ideal time to purchase a home warranty is when you buy a home. This is especially true if you buy an older home with appliances and systems no longer protected under manufacturer’s warranties.

You also may consider purchasing a home warranty if the manufacturer’s warranties for your current home’s major appliances or systems are about to expire. This provides peace of mind and financial predictability as your home and its components age.

What should you look for in sample contracts?

Many home warranty companies provide sample contracts on their websites, such as this sample agreement from American Home Shield. It’s helpful to read through the fine print to become familiar with terminology and industry jargon.

In general, a home warranty contract includes these sections:

• Coverage overview: This may include the length of time for your agreement (most are good for a year), any waiting periods required before you can make your first claim, the type of plans available and the effective dates.
• Specifically covered items: Generally, this list will include covered appliances and systems, such as HVAC systems, along with potential add-on items, such as HVAC tune-ups or coverage for septic systems or roof leaks.
• Glossary of terms: The contract should provide a definition for everything related to your coverage, such as breakdowns, service requests, claims, modifications, covered items and other related terms.
• Limitations, exclusions and coverage caps: Coverage limits should be given in detail. This refers to the amount the provider promises to pay for repairing or replacing items or systems.
• Policy terms: This will include premium amounts, service call fees, cancellation and renewal policies, and any additional benefits.
• State-specific terms: The contract should mention if your state or local government requires specific conditions to be met for licensing.

While no two sample contracts are exactly alike, all should help you understand what you’re paying for and what you can expect if you decide to purchase a home warranty from that company.

What are common home warranty red flags?

When exploring consumer review sites such as BBB and Trustpilot, keep in mind that most people turn to online review platforms to voice complaints. Rather than focusing on one favorable or unfavorable review, look for patterns in the themes voiced by customers.

Look for unfavorable reviews with these themes:

• Difficulty getting an initial quote when comparing plans
• Inflexibility for unusual or emergency circumstances
• Limited add-on coverage availability
• Multiple rejected claims
• Slow claim response time
• Unresponsive customer service

In addition, you may find other red flags during your initial research. Ensure that the company you use has an updated state license. You can find that information by searching the federal government’s service website, USA.gov, for consumer protection services by state.

Note that not every state requires specific licensing by statute or regulation for home warranty providers, so be sure to check with your state’s consumer protection agency.

Finally, make sure your chosen home warranty company backs up its promises with a workmanship guarantee. Most companies provide this for 30 days after a job is done. Some extend their guarantees to 60 or even 180 days. Failure to offer a workmanship guarantee isn’t necessarily a deal-breaker, but it should give you pause.

How much does a home warranty cost?

The cost of a home warranty policy will vary based on the provider and plan you select. The cost will also depend on how often you file a claim because every home warranty provider requires a service call fee ranging from $65 to as much as $150, based on hundreds of sample quotes we’ve collected.

Through our analysis of average costs provided by nine leading home warranty providers, we found that the national average monthly premium for a home warranty is $59, and the national average annual premium is $703.

We found that 2-10 Home Buyers Warranty offered the lowest average price for its plans at $45 per month. American Home Shield offered the highest average cost at $72 per month.

When budgeting for a home warranty, it’s vital to factor in your plan’s coverage caps, service call fees and the price of any add-ons you choose.

Is a home warranty worth it?

Only you can determine whether home warranty coverage is a worthwhile investment. If your budget can accommodate the monthly or annual premiums and service call fees, a home warranty may provide you with financial peace of mind.

A good rule of thumb is to look at the potential cost to repair or replace an appliance or a system in your home and gauge the financial protection that a home warranty could provide. 

We compared the retail price ranges for refrigerators and dishwashers as listed by five major manufacturers — LG, GE, Samsung, Whirlpool and Maytag. New refrigerators offered by those manufacturers range from $643 to $7,999. New dishwashers range from $399 to $1,299.

What about the cost to repair or replace systems, such as HVAC, electrical and plumbing? We surveyed 750 homeowners with home warranties in November 2023, and nearly 50% of respondents reported paying between $2,000 and $9,999 to replace an HVAC system.

The bottom line is this: Determine the value of a home warranty by analyzing your budget and weighing the risk of paying out of pocket for a repair or replacement against the amount you can expect to pay in monthly or annual premiums.

What’s next?

A home warranty can be a smart investment, but it’s important to conduct in-depth research before signing a contract. 

Begin with an assessment of your requirements and seek coverage plans that meet those needs. Choose a provider that matches your budget and values its reputation in the industry. 

Finally, make sure to collect at least three quotes from home warranty companies before you make your decision. Take note of how you feel after online or phone interactions with customer service representatives. Pay attention to how direct and forthcoming they are when answering your questions.