How Does a Home Warranty Work?

A home warranty is typically a one-year contract between a homeowner and provider that covers the expensive, out-of-pocket costs of repairing or replacing items around your home. Policies generally exclude breakdowns caused by neglect, misuse or natural disasters.

How Is a Home Warranty Different From Homeowners Insurance?

While home warranty and home insurance policies sound similar, they’re two different plans. A home warranty covers the cost of repairing or replacing major appliances and systems that no longer work after years of regular use. On the other hand, homeowners insurance covers structural damage to your home when a natural disaster or covered peril occurs.

For example, a typical homeowners insurance plan would cover the following scenarios:

• Damaged appliances from a lightning surge
• Burned belongings from a fire
• Stolen items from a home invasion

What Does a Home Warranty Cover?

Most home warranty providers offer plans that cover appliances, systems or a combination of the two. Many even allow you to supplement your coverage with optional add-ons, which protect your pool, spa, well pump, guest unit and other unique items. 

Here’s a list of common appliances covered under most home warranty contracts:

• Built-in microwave
• Dishwasher
• Dryer
• Freestanding ice maker
• Garage door opener
• Oven
• Range
• Refrigerator
• Stove
• Washing machine

When it comes to systems, most home warranty providers cover the following:

• Air conditioning
• Ductwork
• Garbage disposal
• Heating
• Plumbing
• Water heater

What Does a Home Warranty Not Cover?

Although home warranty plans are comprehensive, it’s important to understand that coverage isn’t all-encompassing. To learn more about the details of your interested provider’s coverage, ask a representative for a sample contract. There, you can look at specific coverage caps and other plan limitations. Below are some of the most common exclusions you might find:

• Cosmetic damage to home systems and appliances
• Damage incurred through improper installation or maintenance
• Systems and appliances with preexisting conditions

If you find a home warranty company you’re interested in and decide to purchase one of its plans, your coverage typically won’t begin for 30 days (the waiting period will be specified in your contract). This lapse in coverage is known as the waiting period. After your waiting period, you can use your new home warranty plan by following these simple steps:

1. When a covered item breaks down from normal wear and tear, you can typically file a claim online or over the phone.
2. Your service provider will take up to 48 hours to process your claim. Afterward, it will dispatch a technician to your home.
3. When the technician arrives, you will owe them a small deductible, known as a service call fee. They will then diagnose the problem and recommend either a repair or replacement.
4. Your provider will cover the repair or replacement costs up to your plan’s coverage caps. 
5. Most providers will honor the technician’s work with a workmanship guarantee, which pays for additional repairs on that item if it breaks down again within a given time period.

Most home warranty policies are structured as one-year contracts, with the option for renewal at the end of the year. However, some providers let customers enroll in multi-year contracts. Signing up for a multi-year plan usually results in a discounted monthly or annual premium.

You can break the cost of a home warranty into two categories: the monthly premium and the service call fee. Your plan’s premium is the amount you owe every month for the length of your contract. The monthly cost of a home warranty is typically between $38.73 and $63.16. Some providers help you save money on your premium by allowing you to pay for the entire year up-front.

The service call fee typically ranges from $75 to $125. Some providers allow you to select your own deductible, with a lower fee increasing your monthly payment and a higher fee decreasing it.

The MarketWatch Guides Team developed a calculator that analyzes the anticipated yearly expenses associated with owning a home warranty. To determine your projected annual home warranty cost, simply input your monthly premium, service call fee and estimated number of claims. We recommend getting quotes from our top providers directly, as prices vary by plan, location and home size.