If you have homeowners insurance, then you could be forgiven for wondering why you would also need a home warranty. After all, why get double protection for home?

The truth is that home warranty is different from home insurance, with the two serving completely separate functions. Homeowners insurance covers damage to your home's structure and/or belongings, bailing you out when you are a victim of theft, vandalism, fire or various other types of disaster. Home warranty covers all the systems and appliances in your home, helping you avoid the cost of unexpected repairs and enabling you to skip the wait for a repairman. In other words, a home warranty could be called 'systems and appliances insurance.'

What does a home warranty cover?

The top home warranty providers generally offer a choice between a systems-only plan, an appliances-only plan, and a combination plan with all your systems and important appliances. Alternatively, some providers offer a basic combination plan with a handful of selected systems and appliances and then a premium plan with all your systems and important appliances. Often, providers will charge an additional fee for covering less-common appliances.

Covered systems typically include:

• HVAC (heating and air conditioner, or A/C)
• Plumbing and plumbing stoppage
• Water heater
• Electrical
• Ductwork

Covered appliances typically include:

• Clothes washer
• Clothes dryer
• Refrigerator
• Microwave (built in)
• Dishwasher
• Garbage disposal
• Ranges/ovens/cooktops
• Ceiling and exhaust fans
• Garage door openers

Paid add-ons may include:

• Pool and spa
• Whirlpool bathtub
• Central vacuum
• Second refrigerator
• Ice maker (in fridge or freestanding)
• Stand-alone freezer
• Roof leaks
• Sump pump
• Well pump
• Septic system
• Septic tank pumping
• Floor/carpet cleaning
• Gutter cleaning
• Pest control
• Fixtures (lighting and plumbing)
• Lawn sprinkler system
• Trash compactor
• Ejector pump
• Swamp cooler

How much should a home warranty cost?

There are two fees to look out for when comparing home warranty providers: the annual premium and the claims service fee.

The annual premium is what you pay each year for your house warranty. You can pay on a monthly or annual basis, but it only ever makes sense to pay monthly if you're planning to move out of your home in less than a year. The annual fee for a 12-month home warranty (or 13-month home warranty, as most home warranty companies offer in practice) ranges from cheap plans for around $300 to premium plans for around $720, depending on how many systems and appliances you need covered.

The claims service fee (also known as the minimal service fee) is the amount you pay each time a contractor visits your home for a covered repair or replacement. The fee is only charged once for a covered repair/replacement; if the contractor has to visit multiple times for the same problem, you should only be charged the minimal service fee once.

What else should you look out for in the fine print?

A home warranty is a contract between you and the home warranty company, and you should always read the fine print to make sure the terms and conditions suit you. Most home warranty providers show a sample contract on your website that you can read through before signing up for an annual plan.

The most important things to look for are:

• Limitations. Each home warranty provider caps the amount of money you can claim during your annual contract period. Some providers set an aggregate annual limit for all covered items, usually ranging from $20,000 to $30,000. But most providers set individual limits for each item, typically ranging from $200 to $3,000 per item.
• Exclusions. When you sign up for a home warranty provider, the first thing you'll see is a list of plans with a table showing what is and isn't included. Always check the contract to see what specifically is excluded.
• Workmanship guarantee. Each time a contractor repairs or replaces something in your home, you get a labor and parts guarantee. These guarantees usually last 30 to 90 days. Sometimes, labor and parts are guaranteed separately, e.g. 30 days for labor but 90 days for parts.
• Service hours . The best house warranty companies offer 24/7 service, enabling you to get service from local technicians at all hours of the day or night.
• Area of coverage . While some home warranty providers operate in all 50 states, others only operate in selected states, so always check your provider's areas of coverage before signing up.
• Size of network. Most home warranty providers only accept claims from pre-screened contractors, with networks ranging from 10,000+ contractors for the average provider to 20,000+ contractors for the biggest players.
• Response times. A large contractor network often–but not always–goes hand in hand with quick response times. Before signing up, read third-party and customer reviews for an idea on how quick your selected provider is at responding.
• Home inspection requirement. Most, but not all home warranty companies, don't require a home inspection before signing up, but read the fine print just to be sure.
• Waiting period. Coverage usually begins 30 days after the home warranty company receives your contract fee. Again, read the fine print just to be sure.

Bottom line

While around 95% of American homeowners have home insurance, far fewer have home warranty coverage, due to the fact that individual systems and appliances are far cheaper to replace than an actual house. Nonetheless, repairing or replacing a system or appliance (particularly your HVAC, electrical or plumbing system) can cost you thousands of dollars – which is expensive enough to regret not having home warranty coverage if you experience a breakdown.

In a nutshell, if you want the peace of mind of knowing you won't be out of pocket for broken systems or appliances, then a home warranty is for you.