Key takeaways
- A home warranty is really a service contract that pays toward repairing or replacing systems and appliances that wear out; homeowners insurance covers sudden damage from events like fire or wind.
- You are not required to buy a home warranty when you buy a home, and your mortgage lender will usually still require homeowners insurance.
- Read the limits: service call fees, per-item and yearly caps, pre-existing condition exclusions and maintenance requirements decide what you actually get.
- Do the math with your own appliances' ages and the contract's real costs before you buy or renew.
- Saving the same money in a dedicated repair fund is a solid alternative, and the FTC suggests it as an option.
Try the calculator: Home Warranty Calculator: Will a Plan Save You Money?
“Is a home warranty worth it?” is one of the first questions new homeowners ask, often because a plan was offered at closing or a mailer arrived soon after. The honest answer depends on your home, your budget and the contract’s fine print. This guide explains what a home warranty is, how it differs from homeowners insurance, where the hidden costs are, and how to decide.
What is a home warranty?
A home warranty is a service contract you pay for, usually yearly or monthly, that helps cover the cost of repairing or replacing major home systems and appliances when they break down from normal use. Typical items include heating and air conditioning, plumbing, electrical systems, water heaters and kitchen appliances.
The Federal Trade Commission (FTC) points out that “home warranties” are really service contracts, not warranties in the traditional sense (FTC). They cost extra and last for a set period.
Texas’s licensing agency describes these contracts, which it calls residential service contracts, as covering repairs or replacement of large appliances and electrical, plumbing, heating or air conditioning systems damaged by a power surge, a defect in materials or workmanship, or normal wear (TDLR). It also notes they’re not the same as a builder warranty, which typically comes with new construction or remodels and covers permanent parts of the home.
How is a home warranty different from homeowners insurance?
Homeowners insurance pays for sudden damage from covered events, such as fire, wind, hail or theft, and covers your liability if someone is hurt. A home warranty pays toward fixing things that wear out or break down. They cover different risks, so a warranty never replaces insurance, and your mortgage lender will usually still require insurance.
The National Association of Insurance Commissioners (NAIC) puts it simply: a homeowners policy isn’t a maintenance contract. It doesn’t pay to repair items that simply wear out, and you’re responsible for upkeep (NAIC).
| Question | Homeowners insurance | Home warranty |
|---|---|---|
| What problem does it address? | Sudden damage from covered perils like fire, wind, hail or theft | Breakdowns from normal wear and tear |
| Required? | Usually required by your mortgage lender | Optional |
| Covers the house structure? | Yes, up to your dwelling limit | Mainly systems and appliances; some plans include limited structural items |
| Covers liability? | Yes | No |
| What you pay when you use it | Your deductible per claim | A service call fee per visit, plus anything above caps |
| Who arranges the repair? | You hire the contractor; the adjuster decides the covered amount | Usually the warranty company sends its technician |
| Who regulates it? | Your state insurance department | Varies by state |
Example: Lightning causes a power surge that ruins your furnace’s control board. Depending on the contract and policy, either one might respond, so check both. But if the 18-year-old furnace simply stops working from age, homeowners insurance generally won’t pay, and a warranty might, subject to its limits. To see exactly what your policy includes, read our guide to what homeowners insurance covers, and if you do have sudden damage, here’s how to file a homeowners insurance claim.
What does a home warranty usually not cover?
Exclusions are where most frustration comes from. Common limits include pre-existing problems, damage blamed on missed maintenance, items not named in the contract, and costs above per-item or yearly caps. Some contracts also reduce payouts for depreciation, and many repair an item rather than replace it.
The FTC’s advice is blunt: if something isn’t listed in the contract, assume it isn’t covered (FTC). It also suggests checking whether the company can deny claims over maintenance problems.
Iowa’s Insurance Division, which regulates residential service contracts in that state, warns that (Iowa Insurance Division):
- Payouts are limited to the coverage limits in the contract, so check that they’re high enough.
- The contract may not cover the full cost of a repair or replacement, so you could owe more.
- Claims for service the company didn’t authorize will be denied.
- Some companies may reduce claim amounts for depreciation.
What does a home warranty really cost?
The real cost is the contract price plus a fee every time a technician comes out, plus anything above the contract’s caps or outside its coverage. To judge value, compare that total with what you’d likely spend on repairs yourself.
The FTC suggests weighing both the upfront price and costs that may be hidden, such as deductibles or fees you pay each time an item is serviced. It also suggests dividing the price by the length of coverage to compare plans (FTC).
Example (hypothetical): A plan costs $600 a year with a $100 service call fee. In one year you have two covered breakdowns, a dishwasher and a water heater.
| Cost item | Amount |
|---|---|
| Yearly contract price | $600 |
| Two service call fees (2 × $100) | $200 |
| Total paid for the year | $800 |
If those two repairs would have cost you $1,200 out of pocket, the plan saved you $400 that year. If they would have cost $500, you lost $300. And in a year with no breakdowns, you’d pay $600 for nothing but peace of mind. Plug in your own numbers, including the ages of your appliances, before deciding.
When might a home warranty make sense?
A home warranty is most likely to pay off when several major systems or appliances are near the end of their useful life, you don’t have savings for a sudden repair, and you’ve found a licensed company with reasonable caps, clear exclusions and a good complaint record. It’s least likely to pay off for newer homes and owners with a repair fund.
It may be worth it if:
- You bought an older home with an aging furnace, AC, water heater and appliances.
- A surprise $1,000 repair would put you in debt.
- The seller is paying for a first-year plan, so it costs you nothing to try.
It may not be worth it if:
- Your systems and appliances are new and still under manufacturer warranties.
- You already have coverage through appliance warranties or credit card benefits. Iowa’s regulator suggests checking this before buying.
- The contract has low caps, high service fees or broad maintenance exclusions.
What questions should you ask before you buy?
Ask what is covered and excluded, how much the company will pay per item and per year, what each service visit costs, whether pre-existing conditions void coverage, who picks the technician, how fast repairs happen, and how you can cancel. Get every answer from the written contract, not the sales pitch.
Texas’s licensing agency suggests these questions (TDLR):
- How much will the plan cost, and how long does it last?
- What specific items does it cover?
- Are there limits on coverage, or incidents that aren’t covered?
- Is there a limit on how much the company will pay?
- Would a pre-existing condition void coverage?
- Is there a fee for service calls?
- Who decides which company makes the repairs?
- How fast will repairs be made?
- Will the plan replace an item that can’t be repaired?
Add a few of your own:
- Is the company licensed or registered where you live? Texas, for example, licenses these companies and lets consumers report unlicensed ones.
- What are the cancellation terms and refund rules? Iowa’s regulator says the contract should include a cancellation refund provision.
- How do I file a claim, and can I do it in writing?
Watch out for warranty sales pressure
Unwanted calls and mailers about home or appliance service contracts are common. The FTC warns that telemarketers may be after your money or personal information, and that offers urging you to “act now” are a sign of high-pressure sales. Never give payment details to a caller you didn’t contact first, and read the contract before paying anything. Iowa’s regulator also urges caution with cold calls and mailers.
If you have a problem with a home warranty company, report it to the FTC at ReportFraud.ftc.gov and to your state attorney general. In Texas, TDLR has an ombudsman for residential service contract issues, including claim delays and denials.
What are the alternatives to a home warranty?
The main alternative is to save the money yourself in a dedicated home repair fund. The FTC notes that putting money aside in a savings account may be a better option than buying a service contract. Pair that with regular maintenance and a few trusted contractors, and you’ll handle most breakdowns on your own terms.
Ways to build your own protection:
- Repair fund. Set aside a fixed amount each month in a separate savings account. Our home maintenance budget guide shows how to size it.
- Regular maintenance. Many breakdowns start with skipped upkeep. A seasonal home maintenance checklist keeps filters, drains and seals on schedule.
- Manufacturer warranties. Register new appliances and keep receipts so you can use the coverage that came with them.
- A short list of trusted pros. Knowing whom to call saves time and money in an emergency. See our guide to hiring a contractor.
Example (hypothetical): Saving $50 a month gives you $600 after one year and $1,800 after three years if nothing breaks. That money stays yours, earns interest, and can pay any contractor you choose.
This guide is general information, not financial or legal advice. Read the full contract and your homeowners policy before deciding.
Try the calculator: Home Warranty Calculator: Will a Plan Save You Money?
Your result
Net savings with the warranty (negative = it costs you more)
-$250
Without a warranty, your repairs would cost about $450 a year; with one, about $700. Net result: -$250 (a negative number means the warranty costs more).
- Yearly repair cost without a warranty
- $450
- Yearly cost with a warranty
- $700
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Frequently asked questions
What is the difference between a home warranty and homeowners insurance?
A home warranty is a service contract for repairs when systems and appliances break from normal wear. Homeowners insurance pays for sudden damage from covered events such as fire, wind or theft, plus liability. Insurance does not pay for items that simply wear out, and a warranty does not pay for storm or fire damage.
Do I have to buy a home warranty when I buy a house?
No. Texas regulators, for example, state plainly that you are not required to buy a residential service contract when you purchase a home. Sellers sometimes offer one as part of the deal, which can be worth accepting since you aren't paying for it.
What does a home warranty usually not cover?
Common limits include pre-existing conditions, problems blamed on poor maintenance, items not listed in the contract and costs above dollar caps. The FTC says if something isn't listed in a contract, assume it isn't covered. Read the exclusions section before you sign.
How much does a home warranty cost to use?
Besides the yearly or monthly price, most contracts charge a fee each time a technician visits, often called a service call or trade call fee. Some also cap what they will pay per item or per year, so you may owe the difference on an expensive repair.
Can I choose my own repair technician?
Usually the company assigns the technician. Some contracts allow you to use your own, but only after the company authorizes the work. Iowa's insurance regulator warns that claims for service the company did not authorize will be denied.
Who regulates home warranty companies?
It depends on the state. Texas licenses residential service companies through its Department of Licensing and Regulation, while Iowa regulates them through its Insurance Division. Check whether a company is licensed in your state and contact your state consumer protection office with problems.
Is it better to save money instead of buying a home warranty?
For many owners, yes. The FTC notes that putting money aside in savings may be a better option than buying a service contract. Your savings stay yours if nothing breaks, and you can pick any qualified contractor when something does.
Sources
We check every source on the date shown. Rules and figures change, so confirm current details with the agency.
- So what's the deal with home warranties? · Federal Trade Commission · accessed
- Extended Warranties and Service Contracts · Federal Trade Commission · accessed
- What Should I Know About Residential Service Contracts? · Texas Department of Licensing and Regulation · accessed
- July Consumer Connection: Service Contracts · Iowa Insurance Division · accessed
- A Consumer's Guide to Home Insurance · National Association of Insurance Commissioners · accessed
About the author
The Homeowner Guide Editorial Team
Our editorial team researches every guide from primary sources such as the IRS, FEMA, the CFPB, the FTC, state insurance departments and county assessors, and updates each article when the rules change.
