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A residential service contract is an agreement between a homeowner and a service provider that covers certain home systems and major appliances . In exchange for a monthly or annual premium, the service provider covers the repair and replacement costs for items listed in the policy. This type of contract is better known as a home warranty .
Many homeowners have questions about how residential service contracts work and whether they are a smart investment. After researching and comparing the best home warranties on the market, we have the answers. Below is our comprehensive guide to residential service contracts .
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With a residential service contract , you do not have to handle unexpected home system or appliance breakdowns on your own. If a covered item malfunctions or breaks down during the coverage period—typically lasting one year, with the option to renew—you can report the problem to your home warranty company .
Once you have filed a claim, the company will arrange a service call with a qualified technician. Some companies allow you to choose your technician and schedule the appointment yourself. The technician will diagnose the problem and propose a solution, which could range from a simple repair to a full replacement, depending on the issue.
In addition to a monthly premium, you will only be responsible for paying a flat service call fee if the claim is approved and the cost does not exceed your coverage limits . The home warranty company will cover the remaining balance. Sometimes, the company will reimburse you rather than pay the costs up-front.
Most home warranty companies offer multiple plans for homeowners to choose from. Often, these are categorized as systems coverage, appliance coverage , or total coverage. Below are examples of what a residential service contract covers .
Residential service contracts generally cover normal wear and tear for your home’s major appliances and systems. The exact terms, including any coverage limits and exclusions , will vary depending on the company and policy you choose. However, home warranties commonly exclude the following:
Although the exclusions above are common, they are not universal. Some companies offer more generous terms than others
Not everyone needs a residential service contract . Living in a newly constructed home makes you less likely to benefit from a home warranty . If your home is older but has brand-new appliances, they may still be covered by their manufacturer’s warranties. In that case, you could opt for systems coverage rather than home appliance or comprehensive coverage.
Residential service agreements are most useful if you live in an older home with aging systems and appliances that are likely to break down soon. They can also provide peace of mind when purchasing a home. Home service contracts are often purchased during real estate transactions at the recommendation of realtors . If you are selling your home, you may purchase a home warranty to incentivize and reassure home buyers .
In general, you can expect a home warranty to cost around $50 per month or $500 per year, with service fees running from $60 to $125. The exact cost will depend on the company and coverage you select as well as the size and location of your home.
To offer specific examples, we requested quotes from three companies for a 2,000-square-foot, single-family home in Richmond, Virginia.
American Home Shield (AHS) lets customers choose a $75, $100, or $125 service call fee. The higher your service fee , the lower your monthly premium. The table below shows quotes from AHS for its three plans.
