What Is a Home Warranty? Cost and Coverage in 2025
Home warranty plans cover some home systems and appliances, but you'll still pay certain costs for repairs.
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A home warranty is an annual plan that pays for replacements and repairs of some of your home's major systems and appliances. You’ll pay an annual or monthly fee, and how much you pay depends on the plan you choose; you’ll also pay a service fee when a technician comes to your house. If your home warranty plan agrees to pay for a repair, you might save money, but denied claims can cost you more in the long run than if you’d just paid for repairs on your own.
For you to get the most out of a homeowner warranty, it's important to read the fine print so you understand what's covered and how the plan works before signing up.
How does a home warranty work?
These are the basic steps for how a home warranty works when something breaks.
When a covered item in your home breaks down, you submit a claim with your home warranty provider.
The company schedules a technician appointment with one of its third-party repair companies. How long you have to wait for an appointment depends on the home warranty company and the technician’s availability.
A technician visits your home to diagnose the problem. The repairperson determines if you need a repair or replacement and submits a report to the home warranty company.
Your home warranty provider reviews the report and approves or denies your claim.
If the home warranty company approves the claim, the company will pay the technician to repair the item. You will pay that month’s premium and the service fee upfront and any remaining balance if your home warranty company has a coverage limit, which is common.
If the home warranty company denies the claim because the item, component or reason it broke down isn't part of your plan, you’ll have to pay the monthly premium and service fee in addition to the cost of repairing the item. In this case, having a home warranty could cost you more than if you’d just fixed the item on your own.
🧐 Did you know?
The term “home warranty” is a misnomer because it’s actually a service contract, according to the Federal Trade Commission. Likewise, homeowner warranties are not homeowners insurance policies, according to the Office of the Attorney General for the District of Columbia. Although home warranties can make homeowners feel more comfortable with home maintenance costs, home warranties are never a replacement for home inspections or homeowners insurance.
What parts of the house does a home warranty usually cover?
Home warranties generally cover appliances and major home systems. Common plans include:
System plans, which cover major home systems, including heating and cooling, electrical and plumbing.
Appliance plans, which cover major appliances, like the dishwasher, oven and washing machine.
Comprehensive plans, which include major systems and appliances. These are sometimes offered in tiers, with the more expensive plans offering a greater range of coverage.
Home warranty companies may or may not cover some other items, such as in-ground sprinklers, swimming pools and septic systems, or the company might require you to get additional coverage for those items. When comparing plans, make sure the options include everything you want to cover.
Home warranties usually exclude coverage for structural issues, such as foundation repair.
A homeowner’s warranty may have a coverage limit, which means the company will only pay so much toward an item’s repair or replacement, even if a covered repair costs more than the limit.
Home warranty companies generally deny claims for system or appliance failures that predate the start of the contract. In other words, if you're buying a home and an issue comes up during the inspection or in the seller's disclosures (or if a problem that wasn’t disclosed surfaces later), your warranty likely won’t cover it. Rather than relying solely on a warranty, consider negotiating with the seller to either fix the issue or give you a credit to fix it yourself.
on American Home Shield's website
on Choice Home Warranty's website
on Liberty Home Guard's website
When does a home warranty cover a repair?
Home warranties usually only pay to fix damage due to certain causes, such as normal wear and tear. This should be outlined in the service contract.
There are a lot of reasons a home warranty won’t cover a repair, and such exclusions vary from company to company. Examples include:
Issues that are the result of human error, improper maintenance or natural disasters such as floods or hurricanes.
A lack of regular maintenance. However, some companies offer coverage for specific maintenance tasks, such as HVAC tune-ups.
Rust, corrosion or sediment that has caused an appliance or system to fail.
Pre-existing conditions or failures caused by improper installation or modification.
Home warranties often won’t pay for certain parts or specific types of repairs to otherwise covered items. For example, if you have a plan with Liberty Home Guard, the company will cover the cost of fixing 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.
It’s important to know what a plan will cover before signing a contract. A reputable home warranty company will provide you with these details before expecting you to make a decision.
» MORE: Are home warranties worth it?
💰 How much money will a home warranty save you on repairs?
You might save money with a home warranty when your provider agrees to pay for certain repairs; however, a home warranty plan isn’t guaranteed to pay every claim. For approved repairs, you’ll pay a monthly fee plus a service fee, which might be cheaper together than having to pay out of pocket for a repair.
For example, the average cost of replacing an air conditioner compressor is around $1,200. If your home warranty plan covers the replacement, you might only be responsible for the home warranty's $65 monthly fee and the $100 service fee.
If your plan limits how much it pays for air conditioning repairs, which is common, you’ll also have to pay any remaining balances. In our example, if your plan caps air conditioner repair coverage at $1,000, you'll have to pay the remaining $200 balance in addition to the premium and the service fee, which means you’d pay $365 to replace your compressor if your plan covered the repair.
In this scenario, your home warranty plan can save you money. But keep in mind that you still have to pay the monthly fee and service fee before you know if your plan will pay for the repair. So if your home warranty plan denied your claim, you’d be out $165 in addition to the $1,200 you'd have to pay out of pocket to replace your compressor.
How much does a home warranty cost in 2025?
A home warranty usually charges two fees before a repair is approved:
Monthly fee: The average home warranty plan costs $62.33 per month, according to NerdWallet’s analysis. Plans often range from about $20 per month to about $120 per month, depending on the company, coverage and the property location.
Service fee: Ranging from $65 to $150 for every service call, you pay this even if the company denies your claim. If you have several claims throughout your service agreement's term, you could pay several hundred dollars on top of your premiums.
When calculating the cost of a home warranty, don’t forget to include the potential cost of a denied claim if you have to pay for a repair on your own.
» LEARN MORE: How much does a home warranty cost?
What to look for in a home warranty
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. 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. 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. 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. 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. You can get an idea of a company's customer satisfaction 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.
What to know before buying a home warranty
Reading the coverage and exclusions information in your contract is one of the most impactful things you can do to avoid costly misunderstandings in the future. You have a right to read your contract before purchasing a plan, and it’s important to understand that home warranties:
Always have exclusions to coverage, no matter what their sales pitches say. Read your contract carefully before purchasing a plan — especially anything listed as an exclusion or limit of liability. For example, a company might cover air conditioning systems but exclude certain parts or components, such as coils. Other companies cover plumbing repairs but won’t pay to clear all plumbing stoppages or repair certain types of leaks.
Are not a type of insurance. Even though some companies call their service fees deductibles, home warranties do not work the same way as insurance policies. They differ in what they cover and how they pay for repairs or replacements. A home warranty is not a supplement for homeowners insurance.
Limit how much they pay. If the cost of a repair or replacement goes beyond a limit stated in your contract, you’ll have to pay the difference. For example, if the bill for a repair is $2,000 and the limit is $1,500, you’re required to cover $500. This is in addition to your monthly premium and service fee.
Can deny your claim for several reasons. Examples include if you had work performed on a covered item without approval or you modified the system or appliance.
May not pay enough to cover the full cost of replacing a covered item. Home warranties often depreciate the value of items as they age, so you’ll likely have to pay at least some money to replace an item, even if it’s covered by the contract.
Alternatives to a home warranty
If you’re unsure if a home warranty is the way to go, there are a few alternatives you can consider:
Set aside money for home repairs and maintenance in a dedicated savings account. This ensures the money you save will be used on repairs instead of a home warranty premium that you’d pay even if you didn’t file a claim. To help your home maintenance fund earn interest, consider putting it in a high-yield savings account.
Register your systems and appliances for manufacturer warranties if they are still within the timeframe for one to apply.
Check the extended product warranties to continue coverage after a manufacturer warranty expires. This allows you to ask for repairs beyond the free manufacturer warranties.
See if a credit card purchase extends coverage if you purchased the item with your credit card. For example, borrowers with an American Express Platinum account can receive up to $10,000 to recover losses up to one year after the original warranty expires.