How to Evaluate a Home Warranty Policy

Buying a home is one of the largest investments most people will make. Purchasing a home warranty policy is a common strategy to protect that investment. It potentially saves you thousands of dollars—and provides some peace of mind. 

In this article, we’ll help you understand the ins and outs of a home warranty policy and how to research home warranty companies.

Understanding Your Home Warranty Policy

A home warranty is a service contract that you can obtain for systems and appliances inside your home. By paying a monthly or yearly premium, you can use a home warranty to help you cover the cost of maintaining, repairing, or replacing the systems and appliances that are included in the agreement.

There are three primary types of home warranty contracts for homeowners to know:

Systems Plans

These warranties will cover major home systems across your entire home—including HVAC systems, plumbing, electrical, etc.

Appliance Plans

These home warranties typically cover home appliances when they need to be repaired or replaced, such as refrigerators, ovens, dishwashers, washers and dryers, and more.

Combination Plans

This option is a more comprehensive plan that covers both home systems and appliances.

Some companies will also allow homeowners to build custom plans and purchase add-on protection for miscellaneous items as needed, such as a pool or second refrigerator.

Regardless of your home warranty company and plan, homeowners are typically responsible for two costs: A yearly/monthly premium and service call fees.

• Premiums are the base rate for having coverage and can range from $400–$600, on average. Most companies offer the option to pay over time with monthly payments.
• Service fees are what you’ll pay when a claim is made and typically range from $75-$125. When inquiring about service fees, it’s important to know if you’ll be responsible for repeat fees—for example, if an HVAC system requires multiple repairs, how many service fees will be charged?

It’s also important to understand if there are any additional fees you might be responsible for as part of your claim.

Find local pros

Home Warranties vs. Home Insurance

This might sound similar to another form of home protection—homeowners insurance. While they can each benefit homeowners, there are some distinct differences.

A home warranty policy is designed to cover the cost of repair or replacement for systems and appliances due to daily wear and tear or aging. On the other hand, homeowners insurance protects the belongings in your home from damage caused by catastrophic events, such as natural disasters, fire, and theft.

Reading the Fine Print in Your Home Warranty Policy

Beyond knowing additional fees you might be responsible for, it’s good to understand what isn’t covered by your policy.

One of the biggest standout features of your home that might not be covered is your roof. For instance, roof leaks are commonly not covered by a home warranty policy because they are considered structural (rather than appliance- or system-related) issues. Even plans that do provide roof coverage almost certainly won’t cover roof replacement. 

Beyond your roof, some other parts of your home typically not protected by a home warranty policy include:

• Garage doors and their tracks
• Windows
• Walls and doors
• Sprinkler systems
• Window A/C units
• Alarm systems

Your warranty is also unlikely to cover pre-existing issues detected during a home inspection or damage caused by improper homeowner maintenance.

Some companies also have coverage limitations on how much they will cover or offer depreciated values on replacements. 

Find local pros

Researching Home Warranty Companies

Before researching home warranty companies, there are several factors to consider to better ensure you’re getting the best plan to meet your needs. The top questions to ask yourself should be:

• How old is the home? A new home with new appliances might only need a systems plan. However, an older home might have systems or appliances that are more likely to break down. With an older house, a combination plan might be your best option.
• Are you a first-time homebuyer? Purchasing a home warranty when you purchase your first home can provide a safety net and help reduce potential headaches down the road. 
• Are you planning to sell? Most home warranties can be transferred to new owners upon selling and offering one to a potential buyer is a great way to sweeten the deal. These protections can also help you avoid unexpected repairs while preparing to bring the home to market.
• What is your budget? Most home warranties cost around $50/month, with service fees ranging from $75-$150, on average. If your budget is tight, a financial strategy that cuts out these added costs might be considered, but keep in mind, a broken HVAC can cost homeowners thousands of dollars. 

Once you’ve answered these questions, start researching home warranty companies.

What Questions Should I Ask Home Warranty Companies?

• Do they have any exclusions or limitations to their coverage?
• What is their average turnaround time if a repair is needed?
• Who are the company’s contractors?
• What costs is the homeowner responsible for?
• Will there be a charge for repeat visits? 
• What is the termination policy?

Compare about three companies/policies to ensure you’ve found the plan that covers everything you need.