What is a residential service contract, and what does it cover: A complete guide

You may have an emergency fund for an unexpected appliance repair, but do you know who to call when your oven won’t heat up? Maybe your appliances are relatively new, but a household member regularly uses aging-in-place technologies that wear out faster. A residential service contract could help.

A residential service contract, also called a home warranty or a residential service agreement, provides service, repair or replacement for built-in household systems and major appliances when they malfunction due to normal wear and tear.

How does a residential service contract work?

A residential service contract provides homeowners with a convenient and reliable action plan for when the inevitable — but always unexpected and usually urgent — need for repairs and replacements arises.

Like homeowners insurance, residential service agreements require the policyholder to file a claim with the provider before scheduling a repair. Once you’ve filed your claim, the provider will assign or approve a professional to visit your home.

Because your home service agreement may be tailored to your needs, it may work differently than your neighbor’s. You may have add-on products or a combination plan that covers repairs and services unique to your home.

Be aware that residential service contracts are different from:

What does a residential service contract cover?

A standard home warranty contract covers mechanical breakdowns and wear-and-tear damage to appliances and systems. Most providers offer add-on coverage for miscellaneous items, such as well pumps and pool equipment.

Appliances

Home appliances that are prone to unexpected breakdowns are covered under residential service agreements. These include:

Systems

Home systems of any age are covered under a typical residential service agreement.

Add-ons

Depending on the provider and contract, any of the items listed below can be included as a home warranty add-on.

What doesn’t a residential service contract cover?

A residential service agreement can provide peace of mind and save you hundreds of dollars, but it won’t cover everything.

For example, most home warranties won’t cover:

Additionally, damage caused by owner negligence, poor maintenance or unauthorized modifications are not covered.

Providers often refuse to honor home warranties for:

How long does a residential service contract last?

Most residential service contracts last for one year. They are renewable and transferrable, and they typically have a 30-day waiting period for claims.

How much does a residential service contract cost?

The cost of a residential service contract ranges from $35 to $140 per month.

In addition to the plan premium, each service call requires a payment — similar to an insurance copay for a doctor visit — directly to the contractor. These are called trade service or service call fees.

Factors that affect the cost of a home warranty include:

When should I purchase a residential service contract?

You can purchase a residential service contract at any time.

You may benefit from buying a home warranty when you purchase your house. Or you may find that a home warranty is a powerful incentive for buyers when you sell your house. But these aren’t the only times it might make sense to protect your home systems and appliances.

For example, the CEO of elder care tech platform CareYaya Health Technologies Neal K. Shah told CNN Underscored that affordable, comprehensive home protection coverage for older adults can support comfortable, safe aging at home.

“Interestingly, appliances and systems that are particularly important for seniors, such as HVAC systems, water heaters and mobility aids like stair lifts, often have coverage caps. This is because these items tend to be used more frequently in homes with older residents, increasing their wear and tear,” Shah said.

Do residential service contracts save you money?

The answer to this question is: It depends.

A residential service contract is a risk management tool that could potentially save you thousands of dollars if your appliances or systems break down during the contract term.

When you buy a residential service contract, you transfer a portion of the risk of an unexpected financial loss to the home warranty provider. But it’s impossible to know how many claims you’ll file or how much you’ll save overall.

This is why it’s so important to choose your plan carefully. Your goal is to protect yourself and your budget from a devastating blow while keeping the cost of doing so as low as possible.

For example, Shah advises older clients to look for warranties that offer flexibility in coverage options for items that support aging-in-place. “Some providers now offer tailored plans for seniors, which might include higher coverage limits on essential systems and lower deductibles for those on fixed incomes,” he said.

How do I choose a residential service contract provider?

“You need to determine if a home warranty company is legitimate — because not all home warranty and service contract providers are created equal,” Elizabeth Dodson, the co-founder of digital home management platform HomeZada, cautions. “Take the time to review their business license and whether they work with contractors, appliance technicians and repair specialists that are licensed, bonded and insured.”

Here are a few more tips for selecting a home warranty provider.

Residential service contracts are regulated by state insurance departments and licensing boards, attorney general offices and consumer protection agencies.

For example, California’s Department of Insurance regulates home warranty companies, whereas in New Jersey, the Division of Consumer Affairs oversees the sale of residential service contracts.

Example regulations for home warranty companies include:

Our recommended home warranty providers

The CNN Underscored team determined the best home warranties of 2024 based on provider offerings. Of the 21 companies we reviewed, these stood out for their coverage, reputation and pricing.

Select Home Warranty

Named by our team as the best home warranty company of 2024, Select Home Warranty offers residential service contracts in 46 states and Washington, D.C., and three tiers of coverage.

You can select from the Bronze, Gold Care and Platinum Care base plans and supplement your plan with add-ons. A Select Home Warranty service agreement does not cover appliances and systems covered under another warranty.

American Residential Warranty

With a low $55 service fee, American Residential Warranty earned 4.4 out of 5 stars from our team. The provider’s three base plans — TotalMAX, SystemsMAX and ApplianceMAX — offer flexibility and cost efficiency.

Add-on coverage includes protection for water lines, sewer lines and pools. The Ultimate Electronics Plan covers problems such as workmanship defects and mechanical failures due to normal wear and tear.

Home Warranty, Inc.

Home Warranty Inc.’s Core Plan covers the most common home appliances and systems. Its Executive Plan provides greater coverage, including:

With the Supplemental Protection Plan, you can add coverage for features such as pools, jetted bathtubs and water softeners and enjoy time — and stress-saving moving assistance for services such as utility connection and insurance quotes as part of the Complementary Home Concierge program.

Bottom line

A residential service contract offers peace of mind, financial protection and convenience. Every homeowner has unique needs, so assess them carefully when deciding on a home warranty plan.

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