A home warranty is not a warranty. It's not insurance, either. It's a service contract, and the Federal Trade Commission wants you to know the difference. That distinction matters because the word "warranty" implies a guarantee of quality. What you're actually buying is a subscription that might cover some repairs, if the company approves your claim, using a contractor you didn't choose, on a timeline you don't control.
That sounds harsh. And yet, for certain homeowners in certain situations, a home warranty can be a genuinely good deal. The trick is knowing which situation is yours.
30-Second Summary: Home warranties cost $660 to $1,049/year plus $75 to $125 per service call. They cover mechanical breakdowns from normal wear and tear, not damage from disasters or neglect. They make the most sense for owners of older homes with aging systems and limited emergency savings.
Home Warranty vs. Homeowners Insurance
This confusion costs people money every year. They're completely different products.
| Home Warranty | Homeowners Insurance |
|---|
| What it covers | Mechanical breakdown from normal wear and tear | Damage from perils (fire, storms, theft, burst pipes) |
| Examples | AC compressor dies, dishwasher motor fails, furnace stops heating | Tree falls on roof, kitchen fire, water damage from burst pipe |
| Does NOT cover | Disasters, structural damage, cosmetic issues | Wear and tear, aging appliances, routine maintenance |
| Annual cost | $660 - $1,049 | $1,951 average |
| Deductible | $75 - $125 per service call | $1,000 - $2,500 per claim |
Your homeowners insurance will never pay to fix your 15-year-old dishwasher. Your home warranty will never pay to repair storm damage. They occupy entirely different lanes.
One more thing insurance covers that warranties don't: your stuff. Homeowners insurance includes personal property coverage. A warranty only covers systems and appliances built into or connected to the home.
What a Home Warranty Typically Covers
A standard plan usually includes:
Systems: HVAC (heating, ventilation, air conditioning), electrical, plumbing, water heater
Appliances: Refrigerator, oven/range, dishwasher, washer, dryer, garbage disposal, built-in microwave
Optional add-ons (extra cost): Pool/spa equipment, septic system, well pump, roof leak repair, second HVAC unit
The exact list varies by company and plan tier. A basic "systems only" plan runs around $400 to $500/year. A comprehensive plan covering systems and appliances is $600 to $1,000+. Add-ons stack on top.
What It Doesn't Cover (The Fine Print)
This is where warranty companies make their money. The exclusions list is typically longer than the coverage list.
Pre-existing conditions. If the problem existed before your coverage start date, the claim gets denied. This is the #1 reason for denial, cited in 29% of rejected claims. Even if you didn't know about the problem, the company can send out a technician, determine the issue was pre-existing, and reject coverage.
Lack of maintenance. Didn't get your HVAC serviced annually? Didn't clean your dryer vent? The company can deny your claim for "improper maintenance." Keep receipts for all tune-ups and service calls. All of them.
Code violations. If the repair requires bringing something up to current building code, the warranty often won't cover the additional cost.
Cosmetic damage. Dents, rust, discoloration, or noise issues that don't affect functionality are excluded.
Coverage caps. Many plans cap coverage at $1,500 to $3,000 per item or $5,000 to $10,000 per year. If your HVAC replacement costs $12,000, the warranty pays its cap and you pay the rest.
Contractor choice. You must use the warranty company's network. You cannot call your trusted local HVAC technician. This is a major source of complaints, as warranty companies often contract with the cheapest available providers.
In 2024, the Better Business Bureau received 14,955 complaints specifically about home warranty plans, making it the 15th most complained-about industry in the country. Arizona's Attorney General extracted an $11.8 million settlement from Choice Home Warranty over deceptive claim practices. The industry has real consumer protection issues.
The Break-Even Math
Let's put actual numbers on this. When does a warranty pay for itself?
Annual warranty cost: $660 ($55/month, mid-range plan)
Service call fee: $100 per visit
Scenario A: Minor Repair Year
Your dishwasher stops draining. With the warranty, you pay the $100 service fee. Total annual spend: $760.
Without the warranty, a repair tech charges $220. Total annual spend: $220.
Warranty loss: $540. You paid $540 more than you would have without coverage.
Scenario B: Major System Failure
Your AC compressor dies. With the warranty (assuming the claim is approved and the cap isn't hit), you pay the $100 service fee. Total annual spend: $760.
Without the warranty, a compressor replacement runs about $2,200. Total annual spend: $2,200.
Warranty savings: $1,440. Clear win.
Scenario B (With a Coverage Cap)
Same AC failure, but the warranty caps HVAC at $1,500. The warranty pays $1,500. You pay $660 (premium) + $100 (service fee) + $700 (amount over cap) = $1,460.
Warranty savings: $740. Still a win, but much smaller than the headline numbers suggest.
The math only works in your favor if you have a major claim and the company pays it in full. In a year with only minor issues, you'll almost always lose money compared to paying out of pocket.
Only 49% of consumers who filed a home warranty claim in 2024 reported being satisfied with the outcome. That's a coin flip.
When a Home Warranty Makes Sense
Older homes with aging systems. If your HVAC is 15 years old, your water heater is 10, and your appliances are original to the house, the probability of a major failure is high. A warranty becomes more like insurance against a near-certainty.
Limited emergency fund. If you can't absorb a sudden $3,000 repair bill, the warranty provides a financial ceiling. It's not the cheapest option long-term, but it prevents a crisis.
Sellers sweetening a deal. Many sellers offer a one-year home warranty as a closing incentive. If someone else is paying, take it. Free coverage is always worth having.
When to Self-Insure Instead
New or recently renovated home. Appliances and systems under manufacturer warranty don't need a separate service contract. Most new HVAC systems come with 5 to 10 year manufacturer warranties.
Strong emergency fund. If you have $10,000 or more in accessible savings earmarked for home repairs, you're better off keeping the $660/year and investing it. Over 10 years, that's $6,600 in premiums saved, plus interest. Stash it in Ally Bank or Marcus by Goldman Sachs at 4%+ APY and you'll have $8,000+ by the end of the decade.
Preference for quality contractors. If you have trusted local technicians and want to control who works on your home, the warranty model (which assigns contractors) will frustrate you.
For a broader look at how to budget for these expenses, see our guide to how much to budget each year for home maintenance. The "sinking fund" approach covered there is the DIY alternative to a warranty.
You can also model your total monthly homeownership costs to see where warranty premiums fit into your budget alongside mortgage, taxes, and insurance.
To understand how home warranties relate to the broader cost picture, our guide on the true cost of homeownership breaks down every line item.
Your Next Move
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Check the age of your major systems. If your HVAC, water heater, and appliances are all under 8 years old, skip the warranty and put $55/month into a dedicated savings account instead.
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If your systems are 10+ years old, get quotes from two warranty companies. Compare American Home Shield, First American, and Choice Home Warranty. Read the contract (especially the exclusions and caps) before signing.
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Keep every maintenance receipt. HVAC tune-ups, dryer vent cleanings, plumbing inspections. If you file a claim, the company will ask for proof of maintenance.
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Check the BBB profile of any warranty company before buying. Fewer than 2 stars? Walk away. The complaint volume in this industry is unusually high.
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Never let a warranty be the deciding factor in buying a home. A one-year seller-provided warranty is a nice bonus, not a safety net. It expires, and then you're on your own.
References
- Federal Trade Commission. (2023). So What's the Deal With 'Home Warranties'? https://consumer.ftc.gov/consumer-alerts/2023/02/so-whats-deal-home-warranties
- Forbes Advisor. (2025). Average Cost of Homeowners Insurance. https://www.forbes.com/advisor/homeowners-insurance/average-cost-of-homeowners-insurance/
- This Old House. (2026). Home Warranty Survey. https://www.thisoldhouse.com/home-finances/home-warranty-survey
- Better Business Bureau. (2025). 2024 Annual Complaint Statistics. https://www.bbb.org/content/dam/iabbb/marcom-assets/bbb-complaints-stats/2024AnnualStatsOverall-ByComplaints.pdf
- Arizona Attorney General. (2026). Attorney General Mayes Announces $11.8 Million Settlement with Choice Home Warranty. https://www.azag.gov/press-release/attorney-general-mayes-announces-118-million-settlement-choice-home-warranty
- Forbes Advisor. (2025). Home Warranty Satisfaction Survey. https://www.reviews.com/insurance/home-warranty/satisfaction-survey/
- Investopedia. (2025). Buying an Older Home? You Likely Need a Home Warranty. https://www.investopedia.com/buying-an-older-home-homeowners-insurance-isnt-the-only-thing-to-get-you-likely-need-a-home-warranty-11779493
