What Is a Home Warranty?

As homeowners, we’re constantly trying to save by purchasing furniture and appliances promised to last. Some of them, specifically new appliances, come with warranties that guarantee repairs with low costs or even cost-free. But these warranties expire one day, and most of our appliances are old with time-ago-dusted warranties.  What happens when an essential appliance breaks down and repairing it costs hundreds, not to say thousands of dollars? Let’s not mention cases when it becomes unrepairable, and you have to purchase a new one. Then, you’ll either save for it or let your home warranty cover it.  What is a home warranty? A home warranty is an annual service contract that helps pay for purchasing or repairing a broken appliance or home system covered by the warranty. These systems and devices fail, tear, or wear over time.  The use of home warranties firstly appeared in the 1970s in the United States. It was a time when real estate was booming, and home warranties were used to help people secure their appliances. American Home Shield was the first company to offer home warranties, and since then, we have seen countless companies in the span of 50 years providing such service.

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Most U.S homeowners purchase and use a home warranty to bear those unexpected and expensive repairs. When the air conditioning system malfunctions or the dishwasher breaks down, you can pick up the phone and ask for a repairman to inspect and fix it. This service resembles homeowners insurance, and that’s why people confuse them but are they the same?

Difference Between Homeowners Insurance and Home Warranty

Both homeowners insurance and home warranty assist in recovering different aspects of your home. Homeowners’ insurance covers the infrastructural part of your home from casualties and liabilities. If your property is subjected to emergencies such as fire, flood, windstorm, or break-ins, homeowners’ insurance covers exterior damages and personal assets losses.  Differently, a home warranty deals only with home equipment breakdowns. Art Chartrand, the executive director and counselor of National Home Service Contract Association (NHSCA), illustrates the difference between the two with this simple example: “If a tree falls on your air conditioning unit – a sudden and fortuitous event due to a peril, wind – that is an insurance claim. If your air conditioner stops blowing cold air, you can use a home warranty.” A home warranty doesn’t simply cover your physical appliances, such as dishwashers, dryers, and refrigerators. It also covers home systems such as electric lines, air conditioning, and heating systems. Let’s see three more examples that explain the difference:

  • A home warranty covers a water heater that doesn’t work because of a tear. Whereas, if there’s water damage from a broken pipe, it will be covered by homeowners insurance. 
  • When your oven range ceases working, the home warranty covers its replacement or repair costs, but if a tree falls over your kitchen, it’s the homeowners’ insurance that compensates for the damage. 
  • A roof that is damaged from wear and tear is covered by a home warranty, while if the damage is caused by fire, hail, or another storm, it is covered by homeowners’ insurance.

Parties Involved in Home Warranty Process

Home warranties are purchased directly from home warranty companies. As a homeowner, you’re allowed to do so regardless of the conditions or age of the property and appliances. However, another party might be involved in purchasing a home warranty: sellers The buyers who purchase a home warranty for their security or the sellers who use it as an incentive to prompt buyers towards a fast transaction. Then, when an issue arises with one of the covered appliances, the company takes your requests and passes them to a contractor. The contractor arrives and either repairs or replaces the item.  If the item is to be replaced, the warranty company offers an alternative or compensates the customer in cash. The choice remains on the customer.   

How Does a Home Warranty Work? 

Legally speaking, home warranties are set by the federal government and then regulated within the states. Each state applies its jurisdiction, and companies have policies that differ. Generally, there are no fixed standards contracts, which leads to a diverse number of plans and policies from companies.  As per the practical aspect, we have explained the process above. Homeowners save money by paying only a call service fee to the tradesmen who arrive to repair their appliances. They keep the time to find individual contractors for a reasonable cost. 

What are the Pros and Cons of a Home Warranty?

Home warranties function as yearly paid contracts that assist in repairing or replacing your heating, plumbing, or electrical systems together with dishwashers, ranges, and other appliances. A home warranty has its pros and cons depending on what buyers want. Pros: 

  • Save money with flat-rate fixes. Home warranty providers make replacements or repairs based on a fixed fee. Even if the damage costs hundreds or thousands of dollars, the home warranty asks for a set fee (which revolves around $100).
  • Security and peace of mind. Most home warranties cost $300-$500 annually. Paying such an amount means frustrating less over the fear of an unexpected breakdown.  


  • Not all repairs are covered. Home warranties are powerless against acts of nature. If a tree crashes on your roof, having a home warranty doesn’t help. 
  • You may never use the home warranty. There are possibilities that you won’t use your home warranty, and there’s no way to retrieve the money paid. 

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Our house remains one of the most significant investments. Sometimes, it’s the investment of a lifetime. Therefore, protecting its assets must be a priority. A home warranty does this job best. It is the ideal approach to inspect, repair or replace your appliances and home systems with minimal costs. Especially when paired with homeowners insurance, it covers all aspects of misfortunes. Research companies that provide them two carefully before making a choice.