10 Things to Know Before Buying a Home Warranty

A home warranty sounds simple: pay for a plan now, and if your air conditioner, refrigerator, plumbing, or another covered system breaks later, the warranty company helps pay to repair or replace it.

The reality is more complicated.

The Federal Trade Commission says so-called home warranties are generally service contracts, not the same thing as warranties that automatically come with a new product or a builder warranty on a new home.

More importantly, paying for a plan does not mean every breakdown is covered.

Contracts can contain service-call fees, exclusions, coverage limits, waiting periods, maintenance requirements, restrictions on which contractor you can use, and rules allowing the company to choose between repairing, replacing, or making a cash payment.

A home warranty can still be useful for some homeowners. But you should buy one based on the actual contract, not the list of appliances pictured on the sales page.

The most important part of a home warranty isn’t the list of covered appliances. It’s the exclusions, limits, fees, and claims rules in the contract.

1. A Home Warranty Is Not Homeowners Insurance

The word “warranty” creates confusion from the beginning.

According to the FTC, a home warranty is generally a service contract that costs extra.

It is different from homeowners insurance.

Homeowners insurance can cover certain losses caused by events specified in the policy, such as fire, theft, wind, or other covered perils.

A home warranty is generally designed around failures of specified home systems and appliances under the conditions stated in the service contract.

It is also different from a builder warranty.

The FTC explains that builder warranties associated with new construction typically cover certain permanent parts of a newly built home, while a separately purchased home warranty/service contract may cover specified appliances and systems.

And it is different again from a manufacturer’s warranty that may already cover your refrigerator, HVAC equipment, dishwasher, or another relatively new product.

What to do

Before paying for another layer of coverage, make a list of what you already have:

• homeowners insurance
• builder warranty
• manufacturer appliance warranties
• HVAC equipment warranty
• retailer extended warranties
• credit-card purchase protections, if applicable
• existing home service plans

Then identify exactly what the home warranty would add.

Paying for overlapping coverage can reduce the value of the plan.

2. “Covered” Does Not Mean Every Part or Every Failure Is Covered

This is one of the biggest traps in home warranty shopping.

A sales page may say:

Air conditioning — covered.

That does not necessarily mean every air-conditioning failure and every related expense is covered.

The contract determines coverage.

The FTC warns consumers that service contracts can cover only part of a product and may contain significant limitations.

California’s Department of Insurance gives consumers an even more direct warning: home warranties can contain dozens of exclusions, conditions, and limitations, and buyers may not discover them until a claim is denied.

A contract might distinguish between:

• covered components
• excluded components
• covered causes of failure
• excluded causes of failure
• diagnostic costs
• repair costs
• access costs
• modifications needed for replacement
• code upgrades
• permits
• disposal
• refrigerant
• cosmetic components

The specific exclusions vary by company, state, plan, and contract version.

That is why comparing plans based only on a grid of green check marks is risky.

What to do

For the expensive systems you care about most—usually HVAC, plumbing, electrical, refrigerator, water heater, and major kitchen appliances—read both:

what is covered and what is excluded.

If a component or type of failure is important to you and the contract doesn’t clearly cover it, don’t assume it will be paid.

3. The Service Fee Is a Second Cost on Top of the Plan Price

Buying the plan does not necessarily make future service visits free.

Many home warranty contracts charge a service or trade-call fee when you submit a claim.

That changes the math.

Suppose you pay an annual or monthly plan price and then experience several relatively inexpensive problems during the year.

If every claim also triggers a service fee, the warranty can become less valuable for small repairs.

Current terms vary by company and plan.

For example, Choice Home Warranty currently states on its FAQ that customers are generally required to pay a $100 trade service call fee per claim, while noting that the fee may be lower depending on available discounts.

Its sample agreement states that the applicable service fee appears in the customer’s Coverage Details.

Other companies and plans can use different fees.

What to do

Before buying, write down:

• monthly or annual contract price
• service-call fee
• whether the fee applies per visit, claim, or trade
• whether another fee applies if a second contractor is needed
• whether repeat visits for the same repair are charged again
• cancellation fees, if any
• optional coverage charges

Then compare the expected annual cost with simply putting the same money into a home-repair fund.

4. Coverage Caps Can Leave You Paying the Rest

Even when a claim is covered, the contract may limit how much the company will pay.

This is especially important for expensive systems.

Coverage limits can apply:

• per appliance
• per system
• per claim
• per contract term
• to specific components
• to accessing concealed equipment
• to optional items

For example, Choice Home Warranty’s current sample agreement states a maximum liability of $3,000 per 12-month period for each Covered Item in many situations, while lower limits apply to certain items and circumstances.

Its agreement also currently specifies a separate limit of up to $500 for certain access needed through roofs, walls, ceilings, floors, concrete, or other inaccessible locations.

Those numbers are examples from one company’s current sample agreement—not universal home warranty limits.

Even an approved claim can leave you with out-of-pocket costs when the repair exceeds the contract’s applicable coverage limit.

Why it matters

Imagine a covered system needs an expensive replacement.

If your applicable contract limit is lower than the total covered cost, you may be responsible for the difference.

Additional excluded work can increase that amount further.

What to do

Find the contract’s dollar limits for your home’s most expensive equipment.

Pay particular attention to:

• HVAC
• refrigerator
• water heater
• plumbing
• electrical systems
• roof leak options
• pools and spas
• well pumps
• septic systems

Don’t ask only:

“Is my air conditioner covered?”

Ask:

“What is the maximum amount this contract can pay for the specific covered failure, and which related costs can still become my responsibility?”

5. Pre-Existing Conditions and Maintenance Can Decide a Claim

A home warranty is generally intended to cover specified failures that occur under the contract’s terms—not to provide an unlimited repair program for equipment that was already failing.

Contracts can contain requirements involving pre-existing conditions and proper operation when coverage begins.

For example, Choice Home Warranty’s current sample agreement states that covered systems must be in proper working order on the effective date and that known or unknown pre-existing conditions are not covered.

Specific terms vary significantly among companies and states.

Maintenance can matter too.

The FTC advises consumers considering service contracts to determine whether coverage can be denied when required routine maintenance instructions haven’t been followed.

This can become particularly important with older HVAC equipment and appliances.

What to do

Before coverage starts:

• keep home inspection reports
• keep appliance receipts where available
• keep HVAC service records
• document model and serial numbers
• photograph major equipment
• keep maintenance invoices
• resolve known problems before assuming they will be covered later

If you’re buying the warranty during a home purchase, ask how the contract handles conditions documented in the inspection report.

6. Coverage May Not Start Immediately

Don’t assume you can buy a plan this morning and submit a claim this afternoon.

Some directly purchased home warranty plans have waiting periods.

For example, Choice Home Warranty’s current sample agreement states that coverage generally starts 30 days after receipt of the agreement fee, with an exception described for proof of prior coverage without a lapse.

Real-estate transaction plans and other providers can have different effective-date rules.

The waiting period matters because a breakdown that occurs before coverage becomes effective may not qualify.

What to do

Before purchasing, identify three dates:

1. Order date
2. Effective date
3. Expiration or renewal date

If you’re switching providers, find out whether continuous prior coverage changes the waiting period.

Get the effective date in writing.

7. You May Not Get to Choose Your Own Contractor

Many homeowners assume they can call their favorite plumber or HVAC company, pay the bill, and send the warranty company a reimbursement request.

That may be wrong.

Some home warranty contracts require the company to select or authorize the service provider.

Choice Home Warranty’s current sample agreement, for example, states that the company has the sole right to select the service provider and will not reimburse services performed without prior approval.

The practical consequence can be significant.

If your air conditioner fails during a heat wave and your trusted HVAC contractor can come today, you may still need to follow the warranty company’s authorization process.

Home warranty contracts may control which contractor performs the repair and require authorization before work begins.

What to do

Before buying, find the answers to these questions in writing:

• Can I choose my own contractor?
• Does the contractor need prior authorization?
• What happens if no network contractor is available?
• Can I arrange an emergency repair myself?
• Will unauthorized work ever be reimbursed?
• How quickly does the company begin arranging service?
• What happens if the first repair doesn’t work?

This matters especially if you live in a rural area or already have trusted local contractors.

8. “Replacement” May Not Mean the Replacement You Expect

A home warranty company’s obligation may not be to buy the exact replacement product you would choose yourself.

Contracts can give the provider discretion over whether an item is:

• repaired
• replaced
• or settled with a cash payment

They may also define the quality or specifications of replacement equipment.

For example, Choice Home Warranty’s current sample agreement states that the company has the right to determine whether a covered item will be repaired or replaced.

For certain appliances, its agreement describes replacement equipment with similar features, capacity, and efficiency but says it does not have to match dimensions, brand, or color.

For other covered items, the contract describes replacement using builder’s-standard-grade equipment and excludes costs exceeding that standard.

The agreement also permits the company to offer cash or a cash equivalent based on its actual cost, which it notes can be less than retail.

This is one company’s current contract language, but it illustrates why the word replacement needs investigation.

What to do

Search the contract for:

• “replacement”
• “cash in lieu”
• “similar features”
• “builder’s standard”
• “actual cost”
• “modifications”
• “code”
• “disposal”
• “permit”

If replacing your high-end appliance or HVAC system with a comparable model is important, determine what the contract actually promises.

9. State Rules and Even the Contract Itself Can Vary

There is no single home warranty contract that applies identically to every U.S. homeowner.

Regulation and contract terms can vary by state.

American Home Shield, for example, provides state-specific sample plan agreements and explicitly tells shoppers that the agreement can vary depending on the selected plan and state.

Choice Home Warranty likewise publishes state-specific terms in certain jurisdictions.

California provides a good example of why location matters.

The California Department of Insurance calls these products “home protection contracts” under state law and regulates and licenses home warranty companies operating there. The department advises consumers to verify a company’s license and review complaint information before purchasing.

Other states can use different agencies, terminology, and requirements.

What to do

Don’t rely exclusively on:

• a national review article
• a YouTube review
• a Reddit post from another state
• a salesperson’s summary
• a generic sample contract

Get the contract that applies to your state and the specific plan you’re considering.

Also check your state insurance department, attorney general, or consumer-protection agency to determine which regulator handles home warranty/service-contract complaints.

10. You Should Compare the Warranty With Simply Saving the Money

The most important question isn’t:

“Are home warranties good or bad?”

It’s:

“Is this particular contract a good way for me to manage repair risk?”

The FTC specifically suggests considering whether putting money aside in savings could be a better alternative to buying a service contract.

A warranty can have value when:

• you have several aging covered systems
• a surprise repair would seriously strain your cash flow
• the contract provides meaningful coverage for the equipment you’re worried about
• the service fees and limits are reasonable
• you’re comfortable using the company’s claims process and contractors

Self-funding may make more sense when:

• you already have a healthy emergency repair fund
• most major appliances are still under manufacturer warranty
• your systems are new
• the contract excludes the failures you’re most concerned about
• coverage limits are too low
• you strongly prefer choosing your own contractor

There is another factor: claims uncertainty.

With savings, you control the money.

With a service contract, whether the company pays depends on the contract and circumstances of the failure.

A Better Way to Compare the Cost

Before purchasing, calculate:

Annual plan cost + likely service fees + likely uncovered expenses

Then compare that with:

Money you could set aside yourself for repairs

There is no universal winner.

The right answer depends on your home’s equipment, financial reserves, contract terms, and tolerance for repair risk.

Home Warranty vs. Homeowners Insurance vs. Manufacturer Warranty

Coverage	Home Warranty / Service Contract	Homeowners Insurance	Manufacturer Warranty
Usually costs extra separately	Yes	Yes	Often included with product
Normal appliance/system breakdowns	Potentially, if contract covers them	Generally not its primary purpose	Potentially during warranty period
Fire or theft	Generally no	Potentially, subject to policy	No
Covered appliance defects	Depends on contract	Generally no	Potentially
Service fee/deductible possible	Yes	Yes	Depends
Coverage exclusions	Yes	Yes	Yes
Dollar limits can apply	Yes	Yes	Yes
Contract/policy must be checked	Yes	Yes	Yes

Always review your actual contract, insurance policy, and manufacturer warranty because coverage varies.

Before You Buy a Home Warranty Checklist

• Confirm that you understand this is a service contract, not homeowners insurance.
• Inventory the appliances and systems you actually need covered.
• Check existing manufacturer warranties.
• Check any builder warranty that still applies.
• Download the actual sample contract for your state.
• Verify that the expensive systems you care about are included.
• Read the exclusions for each important covered item.
• Find every applicable coverage limit.
• Check the service-call fee.
• Determine whether multiple service fees can apply to one problem.
• Check how pre-existing conditions are handled.
• Check maintenance requirements.
• Verify the coverage effective date.
• Check for a waiting period.
• Determine who chooses the contractor.
• Check the rules for emergency repairs.
• Find out whether prior authorization is required.
• Read the definition of “repair” and “replacement.”
• Check whether cash can be offered instead of replacement.
• Check whether code upgrades and permits are covered.
• Check whether equipment modifications are covered.
• Review cancellation terms and possible fees.
• Review renewal terms.
• Determine whether the renewal price can change.
• Check the provider with the appropriate state regulator.
• Research complaints about the company.
• Compare at least two or three contracts.
• Compare the total expected cost with creating your own repair fund.
• Save a copy of the contract you actually purchased.

FAQ

Is a home warranty the same as homeowners insurance?

No. The FTC describes a home warranty as a service contract that costs extra. Homeowners insurance and home warranty contracts address different risks and contain different coverage rules.

Are home warranties actually warranties?

Despite the common name, the FTC says home warranties are generally service contracts. They are different from warranties automatically included with a product or builder warranties associated with new construction.

Does a home warranty cover HVAC replacement?

It may cover certain HVAC failures and potentially repair or replacement, but the answer depends on the specific contract. Excluded components, causes of failure, coverage caps, maintenance requirements, access costs, modifications, and other limitations can affect how much is paid.

Do I have to pay when a home warranty technician comes out?

Many plans charge a service-call or trade-service fee in addition to the plan price. The amount varies by provider and plan. Check whether the fee applies per claim, visit, or trade.

Can a home warranty deny a claim because the problem existed before coverage?

Contracts can exclude pre-existing conditions or require covered systems to be in proper working order when coverage begins. Read the specific contract because definitions and requirements vary.

Can I use my own plumber or HVAC contractor?

Not necessarily. Some contracts require the home warranty company to select or authorize the service provider. Unauthorized work may not be reimbursed.

Will a home warranty replace an appliance with the same brand?

Not necessarily. Replacement standards vary by contract. A provider may be allowed to use equipment with specified comparable characteristics, provide a standard-grade replacement, or offer a cash settlement under the contract’s terms.

Is there a waiting period for home warranty coverage?

Some plans have one. For example, Choice Home Warranty’s current sample agreement generally states that coverage starts 30 days after receipt of the agreement fee, subject to an exception for certain continuous prior coverage. Other companies and real-estate plans can have different rules.

Are home warranties regulated?

Regulation varies by state. California, for example, regulates and licenses home warranty companies as home protection companies through the California Department of Insurance. Check the appropriate regulator in your state.

Is a home warranty worth it?

It depends on the contract and your finances. Compare the annual price, service fees, coverage limits, exclusions, existing warranties, condition of your home’s equipment, and your ability to pay for repairs yourself. For some homeowners, keeping a dedicated repair fund may be preferable.

The Bottom Line

A home warranty can reduce the financial shock of certain covered repairs, but it does not turn home maintenance into an unlimited repair subscription.

Three things matter most:

what is excluded, how much the company can pay, and what you must do to get a claim approved.

Don’t buy based on a list of appliances and systems on a sales page.

Download the contract for your state. Read the exclusions. Find the coverage caps and service fees. Check the waiting period, contractor rules, replacement provisions, and pre-existing-condition language.

Then compare the full cost with simply saving the same money for repairs.

The best home warranty isn’t necessarily the one that says it covers the most things.

It’s the one whose actual contract covers the expensive problems you’re worried about on terms you’re comfortable accepting.

Sources

• Federal Trade Commission — So What’s the Deal With “Home Warranties”?
• Federal Trade Commission — Warranties for New Homes
• Federal Trade Commission — Extended Warranties and Service Contracts
• Federal Trade Commission — Warranties
• California Department of Insurance — Home Protection Contracts
• American Home Shield — Sample Plan Agreements
• Choice Home Warranty — Homeowners User Agreement
• Choice Home Warranty — Frequently Asked Questions