A residential service contract is also called a home warranty or home service contract. While it doesn’t protect everything in the home — home warranties don’t typically cover the repair or replacement of structural elements of a home or specialty systems such as solar panels — they do cover the repair and replacement of certain appliances and systems that fail or have a breakdown.
A residential service contract is often purchased at the same time as a home — providing peace of mind to overwhelmed new home buyers. However, these service agreements can be purchased at any time.
However, residential service policies do have a list of coverage exclusions. Unlike most homeowners insurance policies, home warranties rarely cover damage from misuse or natural disasters.
We spoke with residential service contract expert Josh Rudin — the owner of ASAP Restoration — who has worked with plenty of residential service contract providers over the years. We asked him how residential service contracts work, what they do and don’t cover, and who they’re best for.
What does a residential service contract cover?
Residential service contracts cover a variety of appliances and systems within your home that have been broken due to a mechanical failure. Almost all home warranties cover the repair and replacement of large appliances, along with certain systems, such as electrical and HVAC.
If something is covered by a residential service contract, the residential service provider will pay for a qualifying repair or replacement of a covered item up to a certain amount.
Appliances
Residential service contracts are best known for covering major appliances. They offer protection should crucial parts of your kitchen or laundry room stop working.
“If your dishwasher kicks the bucket, and it isn’t under [a manufacturer’s] warranty anymore, but it is covered by your home warranty, then you can have it repaired or replaced without missing a beat,” Rudin said. Here are the appliances most residential service contracts cover:
- Built-in microwaves
- Cooktops
- Dishwashers
- Dryers
- Garbage disposals
- Ovens
- Ranges
- Refrigerators
- Washers
Service contracts will likely cover repairing or replacing these old or new appliances. However, a residential service contract will limit how much it pays for repair or replacement costs for an appliance within the life of the warranty. If an appliance needs repair beyond this limit, you’re responsible for it.
Systems
Most residential service contracts cover certain home systems:
- Air conditioning
- Ductwork
- Electrical systems
- Heating systems
- Plumbing systems
- Water heaters
Both old and new systems are covered within your policy’s coverage limit. If a system breaks down from normal use, you’ll only need to pay your home warranty company a predetermined service call fee rather than the higher repair or replacement costs.
Additional coverages
Residential service contracts can be tailored to the specific needs of your home with the help of policy add-ons. Home warranty add-ons can provide additional coverage for certain items such as roof leaks, pool and spa equipment, and well pumps. These systems aren’t typically covered in standard residential service contracts but can be easily added to most policies.
What doesn’t a residential service contract cover?
Residential service contracts don’t typically cover specialty home systems, appliances or certain types of damage. Some of these reasons include the following:
- Damage to appliances or systems due to misuse or improper installation
- Damage as a result of natural disasters
- Cosmetic damage
- Damage from preexisting conditions
You’ll need to turn to your homeowners insurance policy when it comes to damage from natural disasters. Rudin said that if your home floods, “the home warranty might cover repairing and replacing the water [filtration system], but not the water damage that it caused in your home.”
Residential service contracts also don’t cover whole-home repairs or renovations. “Home warranties typically don’t cover anything having to do with the structure of the home itself,” Rudin said. This means you’ll be responsible for damage to any structural parts of your home, such as walls, windows and doors.
Not all systems or appliances will be covered, so read the fine print when purchasing a policy. Here are the systems and appliances that are often excluded:
- Certain specialty systems, such as solar energy or propane-based heating
- Some specialty or high-end appliances, such as a high-end oven or wine fridge
- Garage door systems
Additionally, residential service contracts won’t cover items still under warranty. This means that a homeowner with a lot of new appliances and systems still under a manufacturer’s warranty may not need a residential service contract, as most of their important items are already covered.
How does a residential service contract work?
Residential service contracts combine parts of homeowners insurance and a manufacturer’s warranty. “A home warranty is essentially an extension of these warranties without having to go through the manufacturer of each one individually,” Rudin said.
Overall, here’s how a residential service contract process works: you’ll pay for a policy, file a claim, the claim will be investigated, and then the repair or replacement will be made.
Residential service contracts are paid monthly or have an annual fee. Most policies require a waiting period of 30 days after the first payment has been made to ensure your covered appliances and systems don’t have preexisting conditions.
These are the steps you’ll follow when filing a claim with your home warranty company:
Once you’ve purchased a service contract and are out of the waiting period, you’ll file a claim when an appliance or system breaks down. Depending on your provider, this claim will be filed online or over the phone.
Your residential service company will accept or deny your claim.
The company usually sends a service provider within 48 hours if the damage is covered. The service person is typically a third-party contractor, though some residential service contracts will allow you to use your preferred repair person.
The service person will then diagnose and repair your appliance or system. “If the cost of repairing it goes above the cost for replacing it, then [the warranty company] will simply cut you a check and consider the matter closed,” Rudin said.
You’ll pay a service call fee to the service provider if it’s in your contract. Otherwise, the warranty company will pay for your covered repair or replacement up to the agreed-upon amount.
If your claim is approved, the cost of your repair or replacement will be covered up to your plan’s limit. Note that residential service contracts don’t offer a blank check for repair payouts; check your contract for coverage caps.
Residential service coverage limits vary. You’ll be on the hook should the cost of repair or replacement exceed your limit, and you’ll always be responsible for the cost of your plan’s call fee.
Additionally, most residential service contracts have an annual total coverage limit, which caps coverage after a certain amount has been paid out within a year. You won’t receive more coverage from your home warranty policy once you reach your limit.
When can you purchase a residential service contract?
While residential service contracts can be purchased at any point within the life of a home, they’re most commonly purchased after a real estate transaction. Buying a residential service contract at the same time as a new home can assure you that you won’t be on the hook for a new refrigerator or water heater.
With this in mind, some sellers will include residential service contracts within the real estate transaction of a home as an incentive to buyers.
How long does a residential service contract last?
Most residential service contracts only last a year, though you can often easily renew at the end of your policy. But keep in mind that both you and your residential service provider must agree to the renewal, and there’s always a chance that your provider could refuse to renew your policy.
How much does a residential service contract cost?
The national average for annual home warranty costs is $703 per year, based on quotes we pulled using 2,000-square-foot, single-family homes across all states that providers service.
Residential service contract costs can vary depending on the size of your home and its location. Larger homes in more expensive metropolitan areas will have higher monthly premiums than smaller homes in lower-cost-of-living places. Residential service contracts do not have deductibles.
Your plan’s coverage level directly affects its cost, as a residential service contract with higher allowed amounts per appliance or system will have higher annual or monthly costs than a plan with lower allowed amounts. Annual premiums can be paid in full upfront or divided across monthly payments. Most homeowners choose to pay for their home service contracts in monthly installments.
If you’re looking to save money on the cost of your residential service contract, consider these two things:
- Add-ons, such as the coverage of pool and spa systems, affect the cost of a plan. To reduce the cost of your residential service contract, choose a plan that covers fewer appliances and systems and doesn’t have any coverage add-ons.
- Some residential service contracts offer different call fees: a more expensive plan with a lower call fee or a cheaper one with a higher call fee. Consider getting the higher call fee plan for a lower monthly cost.
Because of their annual costs and required call fees, residential service contracts may not be the best choice for every homeowner. Our research showed that the annual total costs of most home warranty policies were equivalent to the cost of a new appliance, so a homeowner needing only a few small repairs or a singular appliance replacement in a year may come out even or end up overpaying with a residential service contract.
Because of this, residential service contracts are probably not the best choice if your home has brand-new appliances or systems in great condition.
However, they can be a wise addition if your appliances and systems are much older and will likely need replacement and repair within the next year. Convenience can be another reason to purchase a residential service contract, as providers “have networks of prescreened contractors, technicians and handymen on their roster, ready and waiting for a call day and night,” Rudin said.
What’s next?
If you’re ready to sign up for a residential service contract policy, we’ve rounded up some of the best home warranty companies. But make sure the residential service contract you pick covers the appliances and systems you have. If it doesn’t, look at the company’s add-ons or pick another policy.
Residential service contracts may be unnecessary for homes with new appliances and systems that are still under a manufacturer's warranty. Instead, they’re best for homes with older, out-of-warranty appliances.
Start shopping for home warranties from reputable companies below:
Editorial note: The name “Homefront” refers to the alliance between USA TODAY and Home Solutions that publishes review, comparison, and informational articles designed to help USA TODAY readers make smarter purchasing and investment decisions about their home. Under the alliance, Homefront provides and publishes research and articles about home service and home improvement topics.
Homefront has an affiliate disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Homefront editorial staff alone (see About Homefront). Homefront adheres to strict editorial integrity standards. The information is believed to be accurate as of the publish date, but always check the provider’s website for the most current information.
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