Quick answer. A home warranty is a service contract, not insurance. It can pay off when your major systems are older, the plan’s caps cover a real replacement cost, and you can document maintenance. You pay a plan price plus a service fee per visit, even if a claim is denied. Reported denial rates vary widely by survey.
YOUR MATH: plan price, service fee, caps, and your system ages.
THE CONTRACT: exclusions, who decides repair or replace, the claim process.
YOUR STATE: who regulates the company and how disputes are handled.
Run the break-even for your own plan →
Claim denied? Jump to what to do →
Court decision, survey figures, and enforcement releases checked October 29, 2026. Plans and state rules vary.
Break-Even Calculator
This shows how many claims it would take for a plan to cover its own price, using the numbers you enter. The values below are examples. Replace them with the numbers in your own contract.
What a Home Warranty Is (and Isn’t)
A home warranty is a paid service contract that promises to repair or replace covered systems and appliances when they wear out, which is different from insurance, which pays for sudden damage from listed events.
A home warranty is a service contract, not insurance. An FTC consumer education article (March 3, 2023, published on MilitaryConsumer.gov) describes home warranties as “really service contracts” and points to ReportFraud.ftc.gov for complaints. A service contract is a separate product that costs extra, unlike a manufacturer warranty, which is included in the price of the product.
YOUR STATE. Rules differ by state. Some states put home warranty companies under the insurance regulator, and California’s Department of Insurance is one reported example. Others treat them as service contracts under different rules, and some states regulate service contracts lightly or not at all. Check your own state.
Courts can also disagree with the label. In Sparks v. Old Republic Home Protection Co., 467 P.3d 680 (Okla. 2020), the Oklahoma Supreme Court held that the plan in that case met Oklahoma’s definition of insurance, so a mandatory arbitration clause could not be enforced under the state’s arbitration act. The U.S. Supreme Court declined to review the case in December 2020. That ruling concerned one contract in one state. It does not mean your plan is insurance.
| Product | What it is | Pays when | What you pay |
|---|---|---|---|
| Home warranty (service contract) | A paid contract to repair or replace covered systems and appliances | A covered item breaks down from normal use and the company approves the claim | Plan price plus a service fee per visit |
| Homeowners insurance | Coverage for the house and belongings against listed events such as fire or wind | A covered loss occurs, after your deductible | Premium plus deductible. Equipment breakdown is usually an add-on |
| Manufacturer warranty | The maker’s promise to fix defects for a stated period | A covered defect appears within the period | Included in the product price |
| Builder warranty | A builder’s promise on new construction, with terms and periods set in the contract | A covered defect is reported within the stated period | Usually included with the purchase. Check your contract |
| Appliance service plan | An extended plan for one product, sold by a retailer or manufacturer | That product fails in a covered way | A price per plan, sometimes with a fee per visit |
For what homeowners insurance can cover instead, see Homeowners Insurance: Hidden Coverages.
What You Actually Pay
You pay the plan price up front and then a service fee each time a technician visits, and you may pay more if a repair costs above the plan’s cap.
YOUR MATH. Three numbers drive the result.
- Plan price. Set by the company, your state, and the plan level. Use your own quote.
- Service fee. A 2025 This Old House survey reports fees mostly between $75 and $125 per visit, and NerdWallet reports a wider range of about $65 to $200 per service call. NerdWallet also says the fee is typically charged each visit even if the company refuses to pay for the repair.
- Over-cap cost. If a repair or replacement costs more than the cap, you pay the difference.
The service fee is due even if the claim is denied.
Illustrative example, not a typical case: with a $600 plan, a $100 fee, a $4,000 replacement, a $3,000 cap, and a 10% denial share, one claim saves about $2,600 on average, so the plan covers its price on the first claim. Change the item to a $400 repair and the denial share to 30%, and the average saving falls to about $180 per claim, so it takes more than three claims to cover the $600 price.
The calculator above runs this for your numbers. It does not tell you whether to buy.
The Fine Print: Caps, Exclusions, and Who Decides
Most disputes come from a handful of clauses: caps, exclusions, and who decides between repair and replacement.
THE CONTRACT. Caps vary widely. Published examples include per-item caps in the low thousands and an annual aggregate cap, but there is no typical cap. Find yours in your own contract and sample contracts, not in explainers.
| Item | What it usually means | What to check |
|---|---|---|
| Pre-existing condition | A problem that existed before the plan started is excluded | How “pre-existing” is defined, whether known and undetectable conditions are treated differently, and any waiting period |
| Maintenance | Claims can be denied for lack of maintenance or missing records | Which records are required and for which items |
| Improper installation | A fault traced to how the item was installed may be excluded | Whether the company must show evidence, and your technician report |
| Code violations and permits | Often excluded. Sometimes limited coverage | Any dollar limit per category or in total |
| Unauthorized repairs | Using your own contractor without approval can void the claim | Whether you can get pre-authorization in writing |
| Cosmetic and structural | Usually outside the plan | The list of excluded parts for each system |
| Items over the cap | The company pays up to the cap and you pay the rest | Per-item cap, annual cap, and lower caps for specific items |
Repair, replace, or cash out
Contracts commonly let the company decide whether to repair or replace. Some user agreements describe that decision as the company’s alone. A Consumer Reports segment also notes that some companies pay only the depreciated value of an approved replacement, leaving you to cover the rest. Sources say replacement is generally the outcome when repair is not possible, and some contracts allow a cash payment in lieu of repair. Read the clause on what happens if a repair fails.
Contractor rules
Don’t hire your own contractor before the company approves the repair. Many contracts void the claim if you do.
Pre-existing conditions
Pre-existing conditions are commonly excluded. Some companies separate known conditions, which stay excluded, from undetectable ones, which they may cover, sometimes after a waiting period. One source reports a 30-day waiting period before service can start. A home inspection report from before the plan began can matter here.
Code violations and permits
Code violations are often excluded, and some plans give limited coverage. As one example, the Assurant Home Warranty sample plans chart lists a maximum of $250 per category on three of its plans and a combined $1,000 across categories on its premium plan, available only during the initial plan term. Treat that as an example only and check your own chart.
Why Claims Get Denied, and What the Numbers Really Say
Claims are mostly denied for exclusions the buyer did not notice, and published denial numbers conflict because surveys count different things.
Common reasons include pre-existing conditions, items the plan does not cover, repairs above the cap, missing maintenance proof, improper installation, and unauthorized repairs.
YOUR MATH. The 2026 This Old House survey reports that nearly 89% of people who filed a claim were satisfied with the most recent outcome, and nearly 4% had a claim denied. Another 6% were pending. This Old House is a publisher that discloses compensation from companies it reviews, so read it with that in mind. Its pages also describe the sample size inconsistently, at 1,000 in one place and 2,000 in others.
You may also see a much higher denial figure attributed to a Consumer Reports survey in other articles. We have not read that figure at its original source, so we do not print it.
| Source | Sponsor type | Reported result | Caveat |
|---|---|---|---|
| This Old House 2026 Home Warranty Survey (updated Feb 6, 2026) | Publisher with affiliate relationships | About 89% satisfied with the latest claim outcome. About 4% denied. About 6% pending | Sample size described inconsistently across its pages. Self-reported |
| Higher denial figure attributed to Consumer Reports in secondary articles | Not applicable | Not printed here | Original source not read. A Consumer Reports segment we did read gives no percentage. A “denied or partially paid” measure would differ from “denied” |
Surveys can disagree for ordinary reasons: who was asked (all customers or only people who filed), what counts as denied (fully denied or also partly paid), how pending claims are treated, and who paid for the survey.
Enforcement examples
On June 15, 2015, the New Jersey Division of Consumer Affairs announced that CHW Group, Inc., doing business as Choice Home Warranty, agreed to pay $779,913.93, including consumer restitution, and to retain a compliance monitor for at least one year under a final consent judgment. The state had alleged the company refused to provide promised repairs or replacements. On December 8, 2021, the Pennsylvania Attorney General announced a settlement with THS Group, LLC, doing business as Total Home Protection, and its owner. The release describes $400,000 in consumer restitution within a $750,000 total payment, and alleges misrepresented coverage and wrongly denied claims. Look up current attorney general actions in your own state before relying on any company’s record.
When a Claim Is Denied: Step by Step
If a claim is denied, get the reason in writing, compare it to the contract, appeal to the company, and then use a regulator or small claims if needed.
If a claim is denied
- Get the denial in writing, with the exact contract clause cited.
- Request the technician’s report and photos.
- Compare the clause to the report. Note vague terms such as “improper installation” or “lack of maintenance.”
- Gather proof: maintenance records, receipts, dated photos, and your inspection report.
- Don’t hire your own contractor for the covered repair before the company approves or refuses in writing.
- File the company’s internal appeal and keep the date.
- Complain to your state regulator (insurance department or attorney general, depending on your state) and to the FTC at ReportFraud.ftc.gov.
- Consider small claims, after checking the arbitration clause for a carve-out.
- If you paid by card and the service was not delivered, ask your card issuer about a billing-error dispute.
| Step | Who | What to send | Note |
|---|---|---|---|
| 1. Company appeal | The warranty company | Denial letter, technician report, maintenance records, photos | Keep the date and a copy. Check the appeal deadline in your contract |
| 2. State regulator | Insurance department or other agency named for service contracts in your state | The same packet plus the contract | Which agency applies depends on your state |
| 3. Attorney general | Your state attorney general’s consumer office | A short timeline and the documents | A common route when no specific regulator is clear |
| 4. FTC | ReportFraud.ftc.gov | A report of what happened | The FTC collects reports. It does not resolve individual disputes |
| 5. Small claims or arbitration | Court or arbitrator | Contract, denial, and proof of loss | Check the arbitration clause first |
Read the arbitration clause before you need it.
Many contracts require arbitration, and some include a small-claims exception. If yours has one, small claims may be available. For procedure, see How to Sue in Small Claims Court and, if you win, How to Collect a Small Claims Judgment.
YOUR STATE. Regulators differ because states classify these companies differently. Start with your state’s insurance department and attorney general pages and follow what they say.
The Seller-Paid Warranty at Closing
A seller-paid warranty is a plan the seller or agent orders at closing, and you can usually keep it, decline it, or cancel it.
Providers describe a transfer to the buyer within a short window after closing. One provider says about 30 days, and warns the plan may become void if the transfer is missed. Transfer fees of about $25 to $50 are reported, and at least one provider says it charges no fee for a change of owner. Cancellation may bring a prorated refund and a possible admin fee. Refunds depend on the contract and on who paid. Seller-paid warranty costs may show up in your closing paperwork. See How Much Are Closing Costs.
| Option | What happens | What to ask |
|---|---|---|
| Keep and transfer | Coverage continues in your name, often for a transfer fee | The term, the transfer window, the fee, and what the plan excludes |
| Decline | You have no plan and rely on savings or other coverage | Whether the seller can change the deal if you decline. Don’t assume you get cash instead |
| Cancel for a prorated refund | The company may refund the unused part, sometimes minus claims paid and a fee | Who gets the refund, the formula, and the deadline |
How to Cancel and Get a Refund
You can usually cancel in writing, and the refund depends on whether you are inside a free-look period or past it.
Many contracts give a free-look period, reported as about 30 days in several sources, with a full refund. Some companies still charge a small administrative fee. After that, refunds are generally prorated, and claims already paid can be subtracted. Many plans also have a waiting period of roughly 30 days before you can file, so little may be paid out inside the free-look window. Check the cancellation clause, cancel in writing, keep the date, and ask how long the refund takes.
Before You Sign: Contract Checklist
Ten questions answered from the contract itself will tell you most of what you need.
- Service fee: how much per visit, and is it refundable if the claim is denied?
- Caps: the per-item cap, any aggregate annual cap, and which items have a lower cap.
- Repair, replace, or cash-out: who decides, and what the contract says if repair fails.
- Pre-existing conditions: how defined? Known vs. undetectable? Any waiting period?
- Maintenance proof: what records are required, and for which items?
- Contractor rules: must you use their network? Can you get pre-authorization for your own?
- Code violations, permits, and modifications: covered at all, and up to what amount?
- Cancellation: free-look period, refund formula, admin fee, effect of paid claims.
- Disputes: arbitration clause? Small-claims carve-out? Appeal timeline?
- Who regulates this company in your state, and where to complain.
Alternatives to a Warranty
You can cover the same risks with savings, existing warranties, or a narrower insurance add-on.
- A repair fund. Set aside money for breakdowns instead of paying a plan price.
- Manufacturer warranties. Check whether an appliance is still covered before paying for duplicate coverage.
- Equipment breakdown endorsement. Some homeowners policies offer it as an add-on. See Homeowners Insurance: Hidden Coverages.
- Appliance-specific plans. A plan for one product can cost less than a whole-home plan, with the same kinds of exclusions.
For damage from events, insurance may apply instead. See Insurance Claim or Pay Out of Pocket and Tree Fell on Your House.
FAQ
Is a home warranty worth it?
It depends on system ages, plan caps, service fees, denial risk, and your maintenance records. The calculator above models the math with your own numbers.
Is a home warranty the same as homeowners insurance?
No. It is generally a service contract for wear-and-tear breakdowns, while insurance pays for listed events. Some states regulate warranty companies through the insurance department.
Do I pay the service fee if the claim is denied?
Commonly yes. Many plans charge the fee when the technician visits, whether or not the claim is approved. Check whether your contract says otherwise.
Can the company choose repair instead of replacement?
Often yes. Contracts commonly give the company the decision, though replacement is common when repair fails, and some contracts allow a cash payout instead.
What does “pre-existing condition” mean?
A problem that existed before coverage began. Some companies treat known conditions as excluded and undetectable ones as covered, sometimes after a waiting period. Read your definition.
Does a home warranty cover code violations?
Often excluded, sometimes with limited coverage. Check your plan chart for any dollar limit on code or permit items.
How do I find my coverage caps?
Look in the contract’s coverage section or plan chart for per-item and annual limits. Ask the company in writing if a cap is unclear.
Can I use my own contractor?
Usually only with approval. Hiring your own before the company approves can void the claim, so get pre-authorization in writing first.
Why do I need maintenance records?
Claims can be denied for lack of maintenance. Receipts, service records, and dated photos help show an item was cared for.
What do I do if a claim is denied?
Get the denial in writing, compare it to the contract, appeal, then complain to your state regulator and the FTC. Consider small claims if the contract allows.
Who regulates home warranty companies?
It varies by state. Some use the insurance department, others use different rules. Your attorney general’s consumer office is a common starting point.
Can I sue in small claims?
Possibly. Check the arbitration clause first, since many contracts require arbitration, though some include a small-claims exception.
Should I keep a seller-paid warranty?
It depends on your systems’ ages, the caps, and the exclusions. Read the contract and compare it with your own math before deciding.
Can I cancel for a refund?
Often yes. Many contracts allow cancellation with a full refund in a free-look period or a prorated refund afterward, sometimes minus fees or claims paid.
How long is the free-look period?
Several sources report 30 days, but it varies by company and state. Find the exact period in your contract.
Is a home warranty worth it on a new home?
It depends. A new home may still have builder and manufacturer warranties, so compare what overlaps. Newer systems may also mean fewer expected claims.
This article is general information, not legal or financial advice. Contracts and state rules vary and change, and figures are reported or illustrative. Court decision, survey figures, and enforcement releases checked October 29, 2026. Read your own contract.
Last updated:
Daniel Hayes is the founder and sole researcher at AdvoraHQ. He covers U.S. personal finance, insurance, and consumer law — working directly from IRS publications, federal and state statutes, court opinions, and SEC filings rather than secondary summaries. His focus is the gap between what readers think they know and what the source documents actually say. Daniel is not a licensed attorney, CPA, or financial advisor; his articles are educational and not personalized advice. Reach him at Daniel.Hayes@advorahq.com.
