What is a home warranty? – MarketWatch

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In this article: Overview | Warranty vs. insurance | Pros and cons | Regulation | Choosing the best home warranty | Getting quotes | Bottom line | Methodology
A home warranty offers peace of mind by financially protecting your home’s major appliances and essential systems. While you can purchase a home warranty plan at any time, some sellers or rental property owners purchase plans as part of their real estate transactions.
No matter when or why you purchase a home warranty, getting comprehensive coverage protects essential items, such as your kitchen appliances, clothes washer and water heater. Keep reading to learn about typical coverage limits, service call fees, repair processes and more.
When a major appliance or system malfunctions due to normal wear and tear, a home warranty helps cover the repair or replacement costs. Many service providers use a network of vetted technicians to resolve your issue promptly. 
While coverage varies among home warranty companies, most providers offer protection for various home systems and major appliances in their most comprehensive plans. Below is a list of the items typically covered in many providers’ plans.
In addition to set plans, most providers offer a list of add-ons to cover extra items, such as a spa or swimming pool.
You can initiate repairs by contacting your provider via phone or online claims service. Once the claim is processed, a technician is dispatched to assess your issue. If the repair or replacement is covered under your protection plan, the technician will return to resolve your issue.
Take note of any waiting periods when you sign up for coverage. You’ll typically have an initial time period — often 30 days — during which you can’t file a claim. This protects the provider from claims for breakdowns that occurred before a homeowner purchased coverage.
Think of a service fee as a deductible. You owe this amount to the service technician when you request service. Many providers allow customers to select their service fee, with a higher fee decreasing the monthly payment and vice versa. Typically, a service fee is around $75.
While they may seem similar, a home warranty and home insurance plan are two different types of coverages. A home warranty is typically a one-year contract that covers the cost of service on a broken-down system or appliance in your home. This coverage is optional and protects specific items in your home, such as your HVAC system, plumbing and dishwasher. Coverage typically covers repairs and replacements needed due to breakdowns from normal wear and tear.
On the other hand, home equity or mortgage lenders require homeowners to carry a valid homeowners insurance policy. Homeowners insurance is a standard policy that protects you from costs associated with an unexpected disaster or peril. Some perils or damages typically covered by this type of insurance include wind, fire, vandalism, hail and theft.
When deciding whether or not to purchase a home warranty plan, it’s important to consider both the benefits and drawbacks of buying coverage.
+ Benefits new home buyers who may be unfamiliar with home systems and kitchen  appliances
+ Helps those who are on a tight budget mitigate the financial risk of a broken system or appliance
+ Puts you in touch with a network of certified and trusted technicians who can handle your repair or replacement
Doesn’t cover all home appliances and systems
May not cover items with preexisting conditions 
Limits coverage with designated coverage caps for how much of a repair or replacement your provider will cover
The regulation of home warranty companies varies from state to state. Unlike home insurance providers, home warranty companies aren’t vetted by a national governing body. 
However, the National Home Service Contract Association is a nonprofit organization that offers self-regulation that providers can sign up for. In addition to this nonprofit and similar organizations, you can look through customer reviews on sites like the Better Business Bureau and Trustpilot to learn more about a home warranty provider. These reviews will give you a better understanding of how a company resolves issues and customer complaints.
When sifting through potential home warranty providers, it’s critical to consider the following:
If you decide to purchase a home warranty plan, it’s important to receive quotes from multiple providers to ensure that you’re receiving the best coverage possible. You can typically get a quote over the phone or submit an online form. 
A home warranty provides homeowners with peace of mind by covering expensive out-of-pocket costs associated with appliance and system repair or replacement. Coverage ensures that your issue is resolved by a vetted professional who can make the necessary home repairs without making a significant dent in your savings. 
While we recommend conducting your own research on a variety of home warranty providers in your area, these three providers all rank highly on our list of the best home warranty companies: American Home Shield, Choice Home Warranty and Liberty Home Guard. These three providers offer an array of quality and affordable plans suitable for most homeowners.
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:
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