Home Warranties: What They Cover and When They Make Sense
A home warranty is a service contract, not insurance. Understanding the difference determines whether one is worth buying.
Fact-checked and reviewed for financial accuracy by Priya Kannan, CFP®. Read our content review process.
A home warranty is a service contract that covers repair or replacement of specified systems and appliances when they fail from normal use. Homeowners insurance covers sudden damage from covered perils — fire, wind, theft. They do not overlap.
How the contracts work
You pay an annual fee, commonly $400 to $800, plus a service call fee of roughly $75 to $150 each time a technician visits. You call the warranty company; they dispatch a contractor from their network. The contract sets caps per item and per year, and those caps are frequently well below replacement cost for major equipment.
Common exclusions
- Pre-existing conditions, including problems present but undiscovered at purchase
- Improper installation or previous unpermitted repair
- Lack of maintenance — a failure attributed to a dirty coil or filter can be denied
- Code upgrades required to complete a replacement
- Cosmetic damage and matching finishes
- Refrigerant recovery, disposal, permits, and crane or access costs
- Items covered by a manufacturer's warranty
When they make sense
- Buying an older home with aging but functioning systems and appliances
- You prefer predictable costs to variable ones, and do not want to source contractors
- The seller is paying for the first year, which is common and costs you nothing
- You are a landlord managing a property remotely
When they do not
- Newer home with equipment still under manufacturer warranty
- You have a reliable contractor and reserves to cover a failure
- Your major systems are near end of life — those are the ones most likely to hit caps or be denied
If you have one, use it well
- Keep maintenance records; they are your defense against a denied claim
- Report failures immediately rather than continuing to run equipment
- Ask for the specific contract clause when a claim is denied
- Escalate in writing, and know your state's insurance or consumer affairs complaint process
- Compare the annual fee plus service fees against a self-funded repair reserve each renewal
Frequently asked questions
Is a home warranty the same as homeowners insurance?
No. Insurance covers sudden damage from covered perils and is generally required by lenders. A home warranty covers mechanical failure from normal use and is optional.
Can I choose my own contractor with a home warranty?
Usually not. Most contracts require you to use their network, which is a common source of dissatisfaction.
Are home warranties worth it?
It depends on the age of your systems, the contract's caps, and your tolerance for handling repairs yourself. They are most defensible on older homes and least useful on new ones.
Editorial note. This article is educational and is not insurance advice. Coverage terms, exclusions, and pricing vary by carrier and by state. Read your own policy documents and speak with a licensed agent about your specific situation.
