Home warranty companies: How to choose one

Your home is likely the most expensive thing you’ll ever purchase. With the average single-family home costing nearly $380,000 in October 2022, according to the National Association of Realtors, it makes sense that you’d want to protect your biggest investment. A home warranty is one way to protect your home and avoid some of the major costs that can come with homeownership, such as replacing or repairing appliances or electrical systems.

What is a home warranty?

In many ways, a home warranty is similar to an insurance policy. It covers repairs and replacements for various things in your home that may break or wear out over time, including appliances, electrical systems, plumbing and the like.

When you purchase a home warranty, you pay an upfront fee to a company that covers some or all of the cost of repairing or replacing things in your home that fail due to regular wear and tear. If nothing fails, then you lose the fee paid. If something does break, though, you won’t have to shell out for the repair — and you might come out ahead.

But a home warranty is no replacement for homeowners insurance: They are two different products. Think of a home warranty as more like a service contract. “A home warranty covers basic maintenance and replacement parts inside a home,” explains author and real estate investor Rachel Hernandez. “Homeowners insurance covers situations that are out of your control, such as a fire or natural disaster. It does not cover basic maintenance and repair issues.”

If you have a mortgage on your home, there’s a good chance your lender required you to purchase homeowners insurance as a condition of your loan. A home warranty, however, is not required.

How they work

If you purchase a home warranty and a covered item in your home breaks, you’ll work with the warranty company rather than reaching out to contractors on your own. The company will contact a local professional on your behalf and have them assess the situation. He or she will determine the cause of the problem and estimate the cost to fix it, then the warranty company will review their report to decide whether they’ll cover the claim. Regardless of whether the claim is approved, you’ll probably have to pay a fee for the service call. Expect to pay about $100 per call.

If the claim is approved, your home warranty company will have someone come and make the repair. They’ll cover the costs, up to any limits specified in your contract. If the cost exceeds the warranty’s limit, you’ll have to pay the remaining balance.

Depending on what goes wrong, a warranty could save you a lot of money. But, as with any service provider, there’s no guarantee that you’ll be happy with the work that’s done. “As a homeowner, I’ve had to file claims on a home warranty for both my hot water heater and heating and air conditioning unit,” says Hernandez. “In these cases, the service provider only bandaged the issues. A few months down the road, the same issues happened again. In the end, I canceled my home warranty coverage and worked with reliable contractors for both my own home and investment properties.”

What they cover

Each home warranty company is free to set its own policies regarding what is covered and what isn’t, so do your research and choose carefully. Warranties typically cover wear and tear — so, if you fail to do proper maintenance, you might be on the hook. And in the case of manufacturer defects, you might need to deal with the manufacturer directly.

Many companies offer multiple tiers of warranty, each with different inclusions and exclusions. Most plans cover things like basic appliances, electrical systems, heating and cooling systems and plumbing. Some higher-end plans will cover more appliances and systems, have higher limits or could even provide advanced coverage for things like the roof.

Home warranty companies: How to choose one

There are dozens of home warranty companies out there, and most offer multiple plans with varying levels of coverage. Plans can range from basic kitchen appliances only to “whole house” packages that include roof repair, swimming pool and septic tank maintenance, home electronics and much more. Many also allow add-ons to cover things not covered in their plans, for an additional fee.

When choosing a company, you’ll want to consider the price of each warranty plan they offer, what each one covers and the maximum amount each will pay out. You should also think about the age and condition of your home, since that will factor into how likely things are to break. There are more than enough companies and plans out there to find one that meets your needs, especially if you can tack add-ons to the prepackaged plan as needed. But it will require some patience to sift through — almost like putting together a jigsaw puzzle. Here are a few of the most popular companies to get you started:

5 popular home warranty companies

Bottom line

Home warranties can be a good way to protect the investment you’ve made in your home and keep you from worrying about expensive repairs — especially if you don’t have a very large cushion of savings or an emergency fund. There are many different companies and plans to choose from, some covering much more than others, so if you’re considering a home warranty plan, take the time to shop around and compare your options.