What is a residential service contract?

In this article: How it works | What it covers | What it does not cover | Who it’s for | For whom it is not | The essential | FAQs

Also known as a home warranty, a home service contract covers the cost of repairing and replacing major systems and appliances in your home. However, not all of these contracts are the same, with many of them differing in the items they protect.

Keep reading to learn more about how they work, how much they cost, and the best home service providers.

How does a residential service contract work?

Homeowners purchase home service contracts to protect their bank accounts from costly household repairs and replacements due to daily wear and tear. A home warranty is not the same type of service contract as home insurance or a manufacturer’s warranty policy.

Home insurance covers the cost of structural damage to your home after a natural disaster or other covered peril. Manufacturer’s warranties cover all defects in a single device or system for the first few years of ownership.

Once you have purchased a home services contract from a provider, the waiting period (during which you cannot file a claim) begins. This coverage period generally lasts 30 days. After the waiting period is over, you can file a claim online or over the phone whenever you notice a problem with a covered item.

A licensed contractor will come to your home to diagnose the problem and schedule a repair or replacement. At this time, you will owe a small deductible, known as a service charge.

What does a residential service contract cover?

Most residential service contracts cover appliances, systems, or a combination of both. Additionally, most plans offer optional add-ons that protect other items that may not fall into either category.


Appliances help you with daily tasks, such as washing dishes and laundry. Here are some major appliances covered by most residential service agreements:

  • Integrated Food Centers
  • Built-in microwaves
  • clothes dryer
  • Washers
  • Dishwasher
  • Freestanding ice makers
  • Garage door openers
  • Ovens, stoves and cookers
  • Refrigerators
  • Trash compactors


Essential home systems keep your home operational and comfortable. Take a look at some of the most popular systems covered by a home warranty plan:

  • Air conditioning systems
  • Central vacuums
  • Electrical systems
  • garbage disposals
  • Heating systems
  • Instant Water Dispensers
  • plumbing systems
  • Smoke detector
  • Water heater

Additional modules

To complete your coverage, most home warranty companies offer optional add-ons. Here is a list of some of the more popular options:

  • Electronic
  • Guest units
  • Limited roof leaks
  • Pest control services
  • Pools and hot tubs
  • Rekey Services
  • Secondary devices and systems
  • Septic tanks and pumps
  • Well pumps

What does a residential service contract not cover?

Although most residential service contracts provide coverage for a variety of items, there are certain exclusions. These policies generally do not cover:

  • Misuse of device or system
  • Devices or systems with pre-existing conditions
  • Cosmetic damage, such as chips and scratches
  • Damage due to improper installation or maintenance

Many homeowners complain that home warranty policy exclusions can be vague. Make sure you get the coverage you need by reading the fine print of a sample contract to find out what’s covered and what isn’t before signing yours.

Do I need a residential service contract?

Some customers don’t see much benefit from home warranty protection. However, for most owners, a home warranty is worth itin particular if:

  • You are a first time home buyer with no knowledge of appliances or system.
  • You don’t have a large emergency fund.
  • You don’t know any reliable service technicians.
  • You own an older home with aging appliances and systems.
  • You want your home to be more appealing to potential buyers.

When should I purchase a residential service contract?

There is no good time to buy a residential service contract; you can purchase a plan whenever you need device or system coverage. However, most homeowners, especially new homeowners, get coverage soon after buying their home. Your new home may even come with a policy if the seller or real estate agent includes one in the contract.

Why shouldn’t I get a residential service contract?

A home warranty may not benefit you if you are a homeowner with DIY knowledge or manufacturer coverage. Another scenario where it might not make sense to purchase a residential service contract is if you have a large emergency fund that can cover the cost of costly repairs and replacements.

How to choose a residential service provider?

If you’ve decided to purchase a residential service contract, it’s time to consider the following factors when finding a provider:

  • Cover: Each plan and provider covers different devices and systems. Take note of the items you want to protect in your home and select a policy accordingly.
  • Cost: Select a plan that fits your budget. While a home warranty costs between $38.73 and $63.16 per month, many providers allow customers to adjust this price by selecting their own service charge. For example, if you choose the highest service fee from your provider, your monthly premium will be lower.
  • Customer service: Customer service can make or break the value of your contract. If a critical appliance or system breaks down in your home, your provider should dispatch a service technician quickly. The best providers offer 24/7 customer service online and over the phone.
  • Reputation: A home service company’s reputation on the Internet can speak volumes about its coverage and customer service. Read customer reviews from the Better Business Bureau, Trustpilot, and similar sites to understand the home warranty company.

If you’re looking for the best comprehensive home warranty provider, the Home Media review team recommends american shield. This provider’s solid reputation, fast claims process, and comprehensive coverage make it a reliable choice for homeowners looking to protect their systems and devices.

The essential

Residential service contracts are useful for many homeowners, especially new buyers with little experience maintaining systems or appliances. This coverage gives them peace of mind that if an item fails, they are protected against costly disbursements.

Before choosing a home service contract, get quotes from multiple providers to compare coverage, cost, and availability. To help you get started, we recommend american shield and Liberty Home Guard. They both offer comprehensive plans that protect your devices and systems.

Frequently Asked Questions About Residential Service Contracts

Methodology: our ranking system of the best home warranty companies

Our consumers rely on us to provide objective and accurate information – as such, we create a comprehensive rating system to formulate our rankings of the best home warranty companies. This system considers a wide range of ranking factors, and we collect data from dozens of home warranty providers to score companies on each factor. The end result is a cumulative score for each supplier – the companies that score the most points are at the top of the list.

To ensure our research is as thorough as possible, we call all major home warranty providers directly and speak with representatives for quotes, details on coverage options, location availability and additional information. We also review sample contracts to better understand what each plan covers and identify limitations. Additionally, we simulate the process of contacting each company’s customer service team to gauge their level of helpfulness and problem-solving ability.

Once we have gathered all relevant data, we use the following rating system to rate each home warranty company on a 100 point scale and then convert the rating to a 5 star rating:

  • Overall plan options (25 points): Companies that offer a variety of plan options are more likely to meet consumer needs. Thus, we award more points to providers who offer more plans and greater flexibility.
  • Cost (25 points): Monthly fees and service charges are both considered. The lower the fee, the higher the score.
  • Confidence (25 points): We analyze customer feedback on third-party review sites to assess each company’s reputation. We deduct points for companies that are currently or have recently faced civil lawsuits.
  • Customer service (10 points): We base this factor on the responsiveness, friendliness and helpfulness of a company’s customer service team.
  • Status availability (5 points): Most home warranty companies do not service all 50 US states. Providers that offer service in most states perform best in this category.
  • Additional benefits (5 points): Promotions and discounts are among the benefits that can make a home warranty more attractive to consumers. Companies that offer benefits that their competitors do not receive more points.
  • Cover specifics (5 points): While the total number of plan options is important, it’s also essential to consider what each plan covers. The more complete the coverage, the better.
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