What Is a Home Warranty?

A home warranty is an annual plan that can cover replacements and repairs of some of your home's major systems and appliances. You’ll pay an annual fee that can range from a few hundred dollars to over $1,000 depending on your plan and a service fee when a technician comes to your home to evaluate an issue.

Although it can give homeowners peace of mind, a home warranty is never a replacement for a home inspection.

For you to get the most out of a home warranty, it's important to read the fine print so you understand what's covered and how the plan works before signing up.

» CHECK IT OUT: NerdWallet’s best home warranties

When a covered item in your home breaks down, you'll contact your home warranty provider. The company will have a technician visit your home to evaluate the issue and determine if you need a repair or replacement and whether it's covered by the warranty. If it's covered, the company will pay the technician to repair the item.

If the problem isn't covered by the warranty — because the item, component or reason it broke down isn't part of your plan — you'll have to cover the cost yourself.

You'll be on the hook for the cost of the technician’s visit even if your claim is denied.

Home warranty coverage is for parts and systems when they break from normal wear and tear. It differs from standard manufacturer warranties because it covers a range of items instead of just one item. There are three common types of home warranty plans:

• System plans cover your home's major systems, including heating and cooling, electrical and plumbing.

• Appliance plans cover major appliances, like the dishwasher, oven and washing machine.

• Combination plans include major systems and appliances. These are sometimes offered in tiers, with the more expensive plans offering a greater range of coverage.

Some items, like in-ground sprinklers, swimming pools and septic systems, may require supplementary coverage or may not be covered by all home warranty companies. When comparing plans, make sure the options include everything you want to cover.

Items covered by a home warranty may have a coverage limit. For example, if you have a plan with Liberty Home Guard, the company will cover drain clogs but only if they can be cleared with certain equipment. If a plumber can’t clear a clog using certain tools, the company won’t pay to fix the problem.

» MORE: Are home warranties worth it?

Home warranties also vary on how much they’ll pay for a technician to access covered systems. For example, if you have a plumbing problem that is accessible only through the wall,  a standard contract from American Home Shield may cover up to $1,000 for a technician to repair the wall to a rough finish that is not guaranteed to match the rest of the wall. You would have to pay any remaining cost.

Typically you have to wait 30 days after buying your home warranty for coverage to kick in.

Most home warranties won’t cover issues that are the result of human error, improper maintenance or natural disasters. Generally home warranty companies don't cover regular maintenance and will expect you to pay for it. However, some companies offer coverage for specific maintenance items like HVAC tune-ups.

Home warranties generally don't cover pre-existing conditions that you knew about before you purchased the contract or failures caused by improper installation or modification.

» MORE: Home warranty vs. home insurance: what's the difference?

Home warranties in 2024 cost an average of $58, per month, according to NerdWallet’s analysis. Plans range from about $20 per month to about $120 per month, depending on the home warranty company, the plan’s coverage and the property’s location.

When considering the total cost of a home warranty, include the service fee price as well. It can range from $65 to$150 for every service call, even if your claim is denied. If you have several claims throughout your service agreement’s term, you could pay several hundred dollars on top of your premiums.

It’s also smart to consider how coverage limits will affect the cost of your home warranty. If your plan limits coverage for HVAC repairs to $1,000 and you think your system might need repairs that cost more than that, research how much you’ll end up paying for the repair when you reach your coverage limit. Additionally, exclusions can also increase the cost of your home warranty if you’re left to cover the cost of a denied repair.

» LEARN MORE: How much does a home warranty cost?

In addition to shopping around for a home warranty company based on cost, you may want to consider these factors when comparing plans:

• Expected repairs.  Does the plan cover repairs that you anticipate needing during its term? Review the service agreements for each plan you’re considering to see if the appliances or systems you are most likely going to need to repair will be covered. Look for any exclusions that might affect coverage.

• Coverage limits. How much will a plan pay toward repairing each type of item? Check the service agreement or plan descriptions to find any coverage limits. Compare these amounts to different types of repairs for the covered appliances and systems. Are the coverage limits reasonable or too low to cover potential repairs for your items?

• Coverage exclusions. Which types of repairs are excluded from the service agreement? Read the service agreement carefully, especially any sections titled “Exclusions” or “Limits of Liability.” These sections often list the types of issues or causes that will lead a home warranty company to deny a claim.

• Waiting period. How long is the waiting period before coverage begins? This is usually stated in a service agreement and in the FAQs on companies’ websites. Generally, home warranty companies require you to wait 30 days before submitting a claim.

• Customer satisfaction. What is the company's customer satisfaction rating? YOu can get an idea by reading reviews on websites like the Better Business Bureau, Yelp and Consumer Affairs. And you can search for any warnings or investigations that have been issued by state officials. For example, attorneys general have published formal complaints against specific home warranty companies for using deceptive tactics to refuse valid claims.

If you’re unsure if a home warranty is the way to go, there are a few alternatives you can consider: