Buying a home is exciting—but owning one also means eventually dealing with things that break.

A furnace stops heating. The water heater fails. The refrigerator quits cooling. A plumbing line starts leaking. The air conditioner decides to stop working during the hottest week of summer.

Those unexpected repairs are one reason many buyers consider purchasing a home warranty.

I recently reviewed a First American Home Warranty sample contract for Oregon and Washington, and there are some potentially valuable protections homeowners should understand—along with some important limitations.

What Is a Home Warranty?

A home warranty is different from homeowners insurance.

Homeowners insurance generally protects against events such as fire, theft and certain types of property damage. A home warranty is a renewable service contract designed to help with the repair or replacement of covered home systems and appliances when they break down.

With this particular warranty, when a covered appliance or system breaks, First American will generally attempt to repair it. If it cannot be repaired, the contract provides for replacement, subject to the coverage terms, limits and exclusions.

For homeowners, the primary benefit is simple: reducing the financial uncertainty associated with an unexpected major repair.

Some of the Most Valuable Items Covered

Depending on the plan and options selected, coverage can extend to many of the expensive systems throughout a home.

Some of the most significant include:

• Heating systems, including heat pumps and many gas, electric and oil furnaces
• Central air conditioning, when included or purchased with the applicable plan
• Water heaters, including tankless water heaters
• Plumbing, including certain water, drain, gas, vent and sewer-line leaks and breaks
• Electrical systems, including wiring, panels, subpanels, breakers, switches and outlets
• Kitchen appliances, including dishwashers, built-in microwaves, ranges, ovens and cooktops
• Refrigerators, depending on the coverage selected
• Washers and dryers, depending on the coverage selected
• Garage door openers
• Certain fans and central vacuum systems

One particularly useful feature is water-heater coverage. The sample contract states that tankless water heaters are included and generally covers their parts, subject to specifically listed exclusions.

Plumbing Coverage Could Be Particularly Valuable

Plumbing repairs have a habit of becoming expensive very quickly, especially when the problem is difficult to access.

The basic contract includes certain leaks and breaks involving water, drain, gas, vent and sewer lines. It also covers items such as pressure regulators, garbage disposals, circulating hot-water pumps, certain valves, toilet components, sump pumps and even instant hot-water dispensers.

The optional Plumbing Plus coverage takes this considerably further.

It can provide:

Up to $1,500 for qualifying plumbing located in or under concrete inside the home’s foundation.

Up to $1,000 for qualifying external water, gas and drain-line leaks outside the home’s foundation.

It can also provide limited amounts toward installing a ground-level cleanout and clearing certain stoppages caused by roots.

For a homeowner who encounters an underground or difficult-to-access plumbing problem, those additional benefits could make the upgraded coverage considerably more valuable.

Heating and Air Conditioning Can Be the Big-Ticket Protection

HVAC repairs are another area where a home warranty can potentially pay for itself.

Heating coverage includes many heat pumps, furnaces, radiators, hydronic circulating pumps, heating elements, thermostats and mini-split ductless systems.

Central air conditioning coverage, when included with the selected plan, can cover components such as the condenser, air handler, evaporator coils, refrigerant lines, thermostats and refrigerant recharging.

The brochure also prominently notes no HVAC refrigerant limit, although homeowners should always review the actual contract and selected options to understand how that applies to their individual coverage.

Considering how expensive HVAC repairs and replacement can become, this is one of the areas I would pay particularly close attention to when comparing home warranty plans.

Major Appliance Coverage

Kitchen appliances under the basic contract have a coverage limit of up to $3,500 per appliance.

Covered kitchen appliances include:

Dishwashers, trash compactors, built-in microwave ovens, kitchen range hoods and ovens/ranges/cooktops.

Optional coverage is also available for a kitchen refrigerator and clothes washer and dryer, each generally subject to the contract’s applicable limits.

For homeowners with more expensive appliances, there is another interesting option called Appliance Plus.

When applicable coverage has been purchased, Appliance Plus increases the limit to a total of $7,000 per appliance for covered kitchen refrigerators, kitchen appliances and clothes washers and dryers.

That could be a significant benefit in a home with newer or higher-end appliances.

Don’t Overlook Code and Modification Coverage

One problem homeowners sometimes encounter during a major repair is that replacing the broken equipment isn’t the entire expense.

A newer furnace, air conditioner or water heater may require modifications or code upgrades before it can be installed.

The optional Codes, Mods, and More upgrade can provide up to $1,250 toward qualifying code corrections or modifications associated with approved repairs or replacements.

That’s the kind of coverage homeowners may overlook until they actually need it.

What About Roof Leaks?

There is an optional Limited Roof Leak benefit providing up to $1,000.

It applies to certain leaks caused by rain and normal wear and tear on qualifying roof types, provided the roof was watertight when coverage began.

However, this is important:

A home warranty is not a replacement plan for an old roof.

If replacement of the roof is necessary, the company’s responsibility under this option is generally limited to the estimated cost of repairing the covered leaking area. Consequential water damage is also excluded.

What Does a Home Warranty Cost?

In the sample Oregon/Washington brochure, one-year buyer pricing for a single-family home under 5,000 square feet ranges from approximately $400 to $775, depending on the plan selected.

The brochure lists a $95 service-call fee.

The higher-level Max Plan is shown at $775 for one year for a qualifying single-family home and combines considerably more protection than the entry-level plan.

When evaluating the price, I wouldn’t necessarily ask:

“Will I get $775 back from this warranty?”

Instead, I would ask:

“Would I rather spend a known amount today to reduce my exposure to an unexpected $2,000, $5,000 or larger repair later?”

That’s really what a home warranty is designed to accomplish.

There Are Important Exclusions

Homeowners should understand that a home warranty does not cover everything that can go wrong with a house.

Coverage is generally designed around failures of specifically covered items from normal wear and tear.

The contract excludes various losses associated with events such as fire, flood, freezing, earthquakes, theft, storms, accidents, vandalism, pests and misuse. Cosmetic problems, routine maintenance and secondary or consequential damage are also generally excluded.

There are also individual dollar limits on certain categories of coverage.

Another important point: homeowners generally should not hire their own contractor and expect the warranty company to reimburse the bill.

The warranty company normally needs to authorize the service and has the right to select the service provider. There are limited circumstances where an outside provider may be authorized, but approval needs to be obtained in advance.

Repair Doesn’t Always Mean an Identical Replacement

This is another detail homeowners should know before buying a warranty.

If a covered item needs to be replaced, the contract generally calls for replacement equipment with similar features, efficiency and capacity.

It does not necessarily guarantee the same:

Brand, dimensions, color or nonessential features.

The company may also use rebuilt components or non-original-manufacturer parts in certain repairs.

That doesn’t necessarily make the coverage bad—it simply means homeowners should have realistic expectations about what “replacement” means under a home warranty contract.

So, Is a Home Warranty Worth It?

For some homeowners, absolutely.

For others, self-insuring and keeping additional money in an emergency savings account may make more sense.

I think a home warranty becomes particularly interesting when purchasing a home with several systems or appliances that are no longer new.

For example, imagine buying a home with:

An older furnace or heat pump, an aging water heater, an older refrigerator, an older washer and dryer, and several kitchen appliances that are outside their manufacturer’s warranties.

One major covered failure during the first year could potentially justify the cost of the warranty.

On the other hand, if you’re buying a newer home where virtually everything is still protected by manufacturer or builder warranties, the value proposition may be different.

One More Benefit for Homebuyers

The brochure also includes a one-time re-key service for buyers.

After closing, a buyer can request service and, for the normal home-warranty service fee, have up to six eligible keyholes re-keyed and receive four copies of the new keys, subject to the contract requirements.

That’s a nice little benefit because changing or re-keying locks is something I recommend new homeowners consider after taking possession anyway.

The Bottom Line

A home warranty shouldn’t be viewed as a substitute for homeowners insurance, proper maintenance or an emergency savings account.

But it can be another layer of financial protection, particularly during the first year of homeownership when buyers may already have spent significant money on their down payment, closing costs, moving expenses, furniture and improvements.

Before purchasing any home warranty, look closely at four things:

What’s covered? What’s excluded? What are the dollar limits? What is the service-call fee?

And don’t automatically choose the least-expensive plan.

Sometimes spending a few hundred dollars more for expanded HVAC, plumbing, refrigerator, washer/dryer, appliance and code-upgrade coverage can dramatically change the usefulness of the warranty.

For homebuyers, the goal isn’t simply to buy a warranty.

The goal is to understand the protection you’re buying and decide whether transferring some of your repair risk is worth the cost.

This article is for general educational purposes and is based on a review of a First American Home Warranty Oregon/Washington sample contract. Coverage, pricing, options, limitations and exclusions can change and may vary by property and plan. Always review your actual warranty contract and coverage summary before purchasing or making a claim.