In this article: How It Works | What It Covers | What It Doesn’t Cover | Who It’s For | Who It’s Not For | The Bottom Line | FAQs
Also known as a home warranty, a residential service contract covers repair and replacement costs for your home’s major systems and appliances. However, not all of these contracts are the same, with many differing in the items they protect.
Keep reading to learn more about how they work, what they cost, and the best home service contract providers.
How Does a Residential Service Contract Work?
Homeowners purchase residential service contracts to protect their bank accounts from expensive household repairs and replacements due to everyday wear and tear. A home warranty is not the same type of service agreement as a home insurance or manufacturer warranty policy.
Homeowners insurance covers the cost of structural damage to your home after a natural disaster or other covered peril. Manufacturer warranties cover any defects on a single appliance or system for the first few years of ownership.
Once you purchase a residential service contract from a provider, the waiting period (during which you cannot file a claim) begins. This delay in coverage usually lasts 30 days. Once the waiting period is over, you can file a claim online or over the phone anytime you notice an issue with a covered item.
A vetted contractor will come to your home to diagnose the problem and schedule a repair or replacement. At this time, you’ll owe a small deductible, known as a service fee.
What Does a Residential Service Contract Cover?
Most residential service contracts cover appliances, systems or a combination of both. Additionally, most plans offer optional add-ons that protect other items that may not fall under either category.
Home appliances help you with day-to-day tasks, such as washing dishes and doing laundry. Here are some major appliances covered under most residential service agreements:
- Built-in food centers
- Built-in microwaves
- Clothes dryers
- Clothes washers
- Freestanding ice makers
- Garage door openers
- Ovens, stoves and ranges
- Trash compactors
Essential home systems keep your house operational and comfortable. Take a look at some of the most popular systems covered under a home warranty plan:
- Air conditioning systems
- Central vacuums
- Electrical systems
- Garbage disposals
- Heating systems
- Instant water dispensers
- Plumbing systems
- Smoke detectors
- Water heaters
To round out your coverage, most home warranty companies offer optional add-ons. Here’s a list of some of the most popular options:
- Guest units
- Limited roof leaks
- Pest control services
- Pools and spas
- Re-key services
- Secondary appliances and systems
- Septic tanks and pumps
- Well pumps
What Doesn’t a Residential Service Contract Cover?
While most residential service contracts offer coverage for a variety of items, there are some exclusions. These policies don’t typically cover:
- Appliance or system misuse
- Appliances or systems with preexisting conditions
- Cosmetic damage, such as chips and scratches
- Damage from improper installation or maintenance
Many homeowners complain that home warranty contract exclusions can be vague. Be sure you’re getting the coverage you need by reading the fine print in a sample contract to find out what is and isn’t covered before you sign your own.
Do I Need a Residential Service Contract?
Some customers don’t see a big payoff from home warranty protection. However, for most homeowners, a home warranty is worth it, especially if:
- You’re a first-time homebuyer without appliance or system knowledge.
- You don’t have a large emergency fund.
- You don’t know reliable service technicians.
- You own an older home with aging appliances and systems.
- You want your home to be more attractive to potential buyers.
When Should I Purchase a Residential Service Contract?
There isn’t a right time to buy a residential service contract; you can purchase a plan whenever you need appliance or system coverage. However, most homeowners, especially first-time ones, get coverage soon after buying their home. Your new home may even come with a policy if the seller or real estate agent includes one in the contract.
Why Shouldn’t I Get a Residential Service Contract?
A home warranty may not benefit you if you’re a homeowner with DIY knowledge or manufacturer coverage. Another scenario where it might not make sense to purchase a residential service contract is if you have a large emergency fund that can cover the cost of expensive repairs and replacements.
How Do I Choose a Residential Service Provider?
If you have decided to purchase a residential service contract, it’s time to consider the following factors to find a provider:
- Coverage: Every plan and provider covers different appliances and systems. Take note of the items you want to protect in your home, and select a policy accordingly.
- Cost: Select a plan that fits within your budget. While a home warranty costs between $38.73 and $63.16 per month, many providers let customers adjust this price by selecting their own service fee. For example, if you choose your provider’s highest service fee, your monthly premium will be lower.
- Customer service: Customer service can make or break the value of your contract. If an essential appliance or system breaks down in your home, your provider should dispatch a service technician promptly. The best providers offer 24/7 customer service online and over the phone.
- Reputation: A residential service company’s reputation on the internet can tell a lot about its coverage and customer service. Read customer reviews from the Better Business Bureau, Trustpilot and similar sites to understand the home warranty company.
If you’re looking for the best overall home warranty provider, the Home Media reviews team recommends American Home Shield. This provider’s solid reputation, quick claims process and comprehensive coverage make it a reliable choice for homeowners who want to protect their systems and appliances.
The Bottom Line
Residential service contracts are helpful for many homeowners, particularly new buyers with little experience maintaining systems or appliances. This coverage gives them peace of mind that if an item breaks down, they’re protected from expensive, out-of-pocket costs.
Before you choose a residential service contract, get quotes from multiple providers to compare coverage, cost and availability. To help get you started, we recommend American Home Shield and Liberty Home Guard. They both offer comprehensive plans that keep your appliances and systems protected.
Frequently Asked Questions About Residential Service Contracts
Methodology: Our System for Ranking the Best Home Warranty Companies
Our consumers rely on us to provide objective and accurate information — as such, we create a comprehensive rating system to formulate our rankings of the best home warranty companies. This system accounts for a wide range of ranking factors, and we collect data on dozens of home warranty providers to grade the companies on each factor. The end result is a cumulative score for each provider — companies that score the most points top the list.
To ensure our research is as thorough as possible, we call every major home warranty provider directly and speak with representatives to get quotes, specifics on coverage options, availability based on location and additional information. We also review sample contracts to better understand what each plan covers and to identify limitations. In addition, we simulate the process of reaching out to each company’s customer service team to evaluate their level of helpfulness and ability to solve problems.
Once we gather all relevant data, we use the following scoring system to grade each home warranty company on a 100-point scale, then convert the score to a 5-star rating:
- Overall plan options (25 points): Companies that offer a variety of plan options are more likely to meet consumer needs. Thus, we award more points to providers that offer more plans and greater flexibility.
- Cost (25 points): Monthly fees and service fees are both taken into consideration. The lower the fees, the higher the score.
- Trust (25 points): We analyze customer feedback on third-party review sites to gauge the reputation of each company. We deduct points for companies that are currently facing or have recently faced civil lawsuits.
- Customer service (10 points): We base this factor on the responsiveness, friendliness and helpfulness of a company’s customer service team.
- State availability (5 points): Most home warranty companies do not serve all 50 U.S. states. Providers that offer service in the most states score the highest in this category.
- Additional benefits (5 points): Promotions and discounts are among the perks that can make a home warranty more attractive to consumers. Companies that offer benefits that competitors don’t are awarded more points.
- Coverage specifics (5 points): While the total number of plan options is important, it is also essential to consider what is covered under each plan. The more comprehensive the coverage, the better.