The Ultimate Guide to Buying a Home Warranty for a Rental

Written on October 27, 2014 by , updated on April 21, 2015

Home WarrantyIf you’ve ever bought a house, you were probably given the opportunity to buy a home warranty in conjunction with the purchase.

Home warranties are some of the most-marketed products in real estate, and often come with referral bonuses. But are they worth it?

In my experience as a homeowner and landlord, I’ve had contracts with four of this country’s leading providers. I’ve learned that it’s a game of risk vs. reward and value vs. cost.

It’s a game of risk vs. reward and value vs. cost

This article discusses the common questions and concerns regarding home warranties, including:

  • What is a home warranty?
  • What is covered?
  • How much do they cost?
  • Are they worth it?

What Is a Home Warranty?

Simply put, it’s a home services contract that will pay for necessary repairs due to common maintenance issues, and for the subsequent replacement of appliances if they cannot be repaired.

The home warranty industry was started in 1971 by American Home Shield and has grown into a competitive nationwide industry occupied by dozens of companies. However, it’s important to realize that though these policies are called “warranties” they are not actually warranties in the common sense of the term.

It’s Not Actually a “Warranty”

A traditional “warranty” in the general sense, is a guarantee towards the quality of a product or service made by the seller to the buyer.

A “home warranty” is not a guarantee, but rather a contract to provide repair and/or replacement services for major appliances and home systems that fail due to normal wear and tear.

These service contracts will not cover every repair or issue that you may have.

In fact, common consumer complaints show that many of these companies try to evade coverage by citing homeowner’s maintenance negligence or claiming the issue is a “pre-existing problem.”

Angie Explains

What Does the Policy Cover?

Typical basic policies cover home appliances, heating, cooling, plumbing, and electrical systems.

For a premium, most providers will cover roofs, wells, pools, plumbing and lighting fixtures, and lawn sprinkler systems.

Structural systems are not typically covered under a home warranty policy, but rather by a traditional primary home insurance policy.

Common Coverages

Repair ItemBasic PlansPremium Plans
Built-in Microwave OvenXX
HVAC (Heating/Cooling)XX
Electrical SystemXX
Plumbing SystemXX
Clothes Washer/DryerXX
Garbage DisposalXX
Ceiling FansXX
Plumbing StoppageXX
Water HeaterXX
Clothes DryerXX
Garage Door OpenerXX
Sum PumpX
Stand Alone FreezerX
Ice MakerX
Central VacuumX
Well PumpX
Lawn Sprinkler SystemX
Plumbing FixturesX
Lighting FixturesX
Septic SystemsX
Water FiltersX

Always Read the Fine Print

Actual coverage varies significantly between the plethora of home warranty companies. Most companies will promise you the world, but many consumers often find that their contracts are riddled with exclusions and denial provisions.

For example, most basic policies include plumbing, but not if the pipes freeze.

Further, the actual parts that tend to break most often, like a shower diverter or sink faucet, are not covered at all. When the contract refers to “plumbing,” they only mean the actual pipes in the wall.

It’s important to remember that home warranty companies are for-profit entities and they will pursue their best interests, not yours.

Home warranty companies are for-profit entities and they will pursue their best interests, not yours.

Check the Maximum Allowances

Though “heating” is typically covered with the option to replace the furnace should it not be repairable, the contract might specify that the insurer will only pay up to $1,000 toward a replacement, at their option.

Though helpful, most furnaces cost between $3,000-$7,000, leaving the consumer to pay the difference.

Further, the homeowner does not get to choose whether it’s time to replace the unit or not. The warranty company could opt to issue a payout, and let the homeowner deal with it alone.

By that point, the furnace has been broken for at least a week, the tenants are asking for a rent refund, and the policy holder must coordinate the repair with another service company.

How Much Do They Cost?

Besides Cozy, it’s hard to find products that provide incredible value at little or no cost. Like most warranty and insurance products, the cost of a policy depends on the amount of coverage you buy.

Again, most companies have both basic and premium policies that you can purchase, but they will all insure specific items, such as hot tubs or solar panels, for an extra fee.

Annual Fee

In my experience, policies range from $400-$800 per year for a typical single-family home, depending on the amount of coverage that is purchased.

Most companies will validate their price by providing cost-comparison charts of common repairs, such as the one below, but fail to mention the maximum payouts or exclusions previously mentioned.

ItemAverage Replacement CostAverage Repair CostCost w/ Home Warranty
Central A/C$4,013$535$100 service fee
Heating System$3,000$685$100 service fee
Refrigerator$1,025$308$100 service fee
Plumbing$1,100$363$100 service fee
Range/Oven$1,400$180$100 service fee
Washer or Dryer$525$180$100 service fee
Source: Estimates are based on national independent service contractors

Though such comparisons are mostly accurate, the dirty little secret of the insurance industry is that these companies make their money because they know most people don’t fully utilize the service.

…they know most people don’t fully utilize the service.

Deductible/Service Call Fee

The most common deductible for home warranty policies come in the form of a service fee.

When a repair technician shows up to inspect and service the property, the policy holder is responsible for providing a small payment directly to the technician, regardless of the work being performed.

In my experience, this deductible typically ranges from $75-$150 per claim. HMS National has the only policy that I’ve seen with a $0 deductible, however their premiums are slightly higher. Perhaps it balances out in the wash (pun intended).

Waiting Period

Most companies contractually have a 30-90 day waiting period between signing up and when the consumer can actually use the service.

This waiting period is designed to prevent a policy holder from making a claim on a pre-existing condition, but I think it is a horrible way to start out a new business relationship.

It’s like saying “Yes, you must pay the bill, and no, you can’t use the service yet.”  Can you imagine if car dealerships made you pay for a car, but then you couldn’t drive it for 90 days?

Yes, you must pay the bill, and no, you can’t use the service yet!

These waiting periods can be quite frustrating when a new repair issue surfaces prior to the waiting period ending – leaving the policy holder to seek help elsewhere. What a bad first impression!

Is a Warranty Worth Buying?

Whether or not you choose to buy a home warranty is a personal decision based on multiple factors.

Personally, I typically purchase a home warranty for the first 1-2 years on every property that I acquire.

After a few years, I usually feel that I have a better understanding of the status and condition of the home and its appliances, and usually choose to self-insure repairs via an emergency fund from that point on.

ask-lucasTo help you make the decision, listen to my Q&A response in our podcast, Ask Lucas #005, in which I share a little about my experiences and how I go about making the decision.

Top Considerations

1. What’s the age of the dwelling?

Brand new homes probably won’t need a warranty policy because most of the appliances have existing manufacturer’s warranties already. However, if the house is 10+ years or older, some of the appliances, if original, will start to fail.

2. What’s the condition of the appliances?

Regardless of the age of the appliances, what condition are they in? Have previous tenants failed to clean the air filters, and therefore the AC sounds like it’s going to die at any moment? Does the ice maker refuse to make ice despite only being two years old?

3. Do you have an emergency fund?

I recommend having an emergency fund for your rental business, and to financially plan for major repairs.

Without an emergency fund, it will likely be difficult to find the money to replace the water heater when it suddenly breaks. Self-insuring repairs is always a better way to go, but without an emergency fund, a home warranty might be a smart option.

4. What’s your comfort level?

If you would prefer not to handle the repair calls, then a home warranty might be the best option. However, keep in mind, it’s not completely hands-off but the warranty company does try to handle most of the repair coordination.

I’ve found that I never save as much time as I would have expected. The time I save from not having to call multiple vendors and collecting estimates, I spend on multiple calls to the home warranty company to check on the status of the claim.

5. What’s their reputation?

Before you shell out hundreds of dollars, do your research on the company. I recommend checking Better Business Bureau and Yelp for reviews and ratings on all companies before signing a contract.

6. Overall cost

Figure out what your expected costs (plus unknowns) are for repairs and replacements at the property, and then check to see if a home warranty would cover those specific issues. If so, weigh that against their annual fee and recurring deductible.

7. Are you a local landlord?

Can you meet with the repair technicians at the property to pay them the service call fee? If not, will your tenants front the money until you can reimburse them? If this coordination is too difficult, then you might want to consider a plan with a $0 deductible.

My Recommendations

I’ve used four companies over my life as a landlord. I’m not affiliated with any warranty company, but I can tell you about my opinions and experience with each.

HMS National

HMS has the ONLY home warranty program designed specifically for landlords. Between $0 deductibles and FULL replacement coverage, they meet the unique needs of a landlord like no other company I’ve seen.

cbbb-accred-a-plusHMS National has an A+ rating with the Better Business Bureau.

HMS Home Warranty

American Home Shield

I’ve been a customer of AHS twice and they have always delivered within the terms of the contract. They are fairly reliable, however the deductibles seem high and coverage minimal considering the price.

cbbb-accred-a-plusAMS has an A+ rating with the Better Business Bureau.


Old Republic

Old Republic is affordable, but it typically has a high deductible. They did replace a washer/dryer unit for me, which I was pleased about, but then dropped me from the policy because they weren’t making any money on me. In the end, I received more in compensation than I paid for the policy.

cbbb-accred-a-plusOld Republic has an A+ rating with the Better Business Bureau

Old Republic

My Warnings

The only other company that I have used is Select Home Warranty, and it was a horrible experience.

In my case, they refused to pay out on legitimate claims spanning five different properties even claimed that they didn’t have to abide by the contract that we signed. They were looking for excuses to deny coverage at every step along the way. They are not accredited with the Better Business Bureau, and for good reason.

Learn More

photo credit: Images by John ‘K’ via cc



Get our free newsletter

Join 200,000+ landlords

  • ​Tips to increase income
  • Time-saving techniques
  • ​Powerful tools & resources

Join the Discussion

Your email address will not be published. Required fields are marked *

 characters available. Be short, sweet and to the point.