Are Home Warranties Worth It? What They Cover, What They Deny, What They Cost

Picture a furnace that quits on a January night. The technician comes out the next morning, opens the cabinet and tells you the heat exchanger is cracked. The unit’s 19 years old and not worth fixing. You need a new one, and you need it this week.

Plenty of homeowners make the same call next, to their home insurance company. The answer is no. Home insurance pays for sudden events like fire, wind, a falling tree or a burst pipe, and it doesn’t pay for equipment that has simply reached the end of its life. The Insurance Information Institute says so directly: keeping up the home is your job, and a policy won’t cover damage that comes from lack of maintenance.

So the bill is yours, and it isn’t small. HomeAdvisor’s 2026 cost data, updated in June, puts the average heating and cooling system replacement at about $7,500. Most homeowners pay between $5,000 and $12,500, and big or complicated jobs reach $22,000. An air conditioner alone runs $3,900 to $7,900. A gas furnace alone, $3,800 to $10,000. The water heater is the smaller cousin at $1,347 on average.

$7,500 is the average cost to replace a home heating and cooling system in 2026, according to HomeAdvisor. When the old system simply wears out, a standard home insurance policy pays $0 of it.

That gap is what home warranty companies are selling to fill. A home warranty promises to repair or replace major systems and appliances when they fail from normal use. NerdWallet’s 2026 survey of quotes from 19 companies put the average price at $73 a month, or $876 a year, with a range of $28 to $191 a month.

Whether it’s a good trade comes down to three things buried in the contract: the payout cap, the service fee and the list of exclusions. The District of Columbia’s attorney general gives a blunt example of the first one. Under a capped contract, the office warns, you may get only $1,600 toward replacing a $12,000 boiler.

What a home warranty actually is

The name’s misleading. It isn’t a warranty in the usual sense, since nobody is standing behind a product they built, and it isn’t insurance either. The Federal Trade Commission calls these contracts on existing homes what they are: service contracts, sold separately, for an extra fee.

A typical contract runs one year and renews. You pay the annual or monthly price, and when something covered breaks, you call the warranty company rather than a repair shop. The company sends a contractor from its own network, and you pay a service fee for the visit, which NerdWallet found averages about $108. The contractor reports back. Then the company decides whether to repair, replace, offer cash or deny.

The company makes those calls, not you. You don’t pick the contractor, the brand of the replacement or the timing. In July, with every technician in town booked solid, that matters.

Oversight is uneven, too. Depending on your state, these companies may answer to the insurance department, a licensing board, a real estate regulator or mostly to the attorney general’s consumer protection office.

The numbers side by side

Two lines in that table matter most. A year and a half of warranty payments ($1,314) comes to about the price of a new water heater, so a warranty bought mainly for the water heater rarely pays off. The heating and cooling system is the one item big enough to justify the contract, and that’s why the cap on that line is the first number to find.

Where claims get denied

Complaints about home warranties follow a pattern, and consumer agencies keep flagging the same trouble spots.

Caps. The contract limits what the company pays per item and often per year. NerdWallet’s illustration is a $2,000 repair against a $1,500 limit, which leaves you $500. On a bigger job the gap grows. If the cap were $3,000 and the job $7,500, the warranty would work exactly as written and you’d still owe $4,500.

Pre-existing conditions. Most contracts exclude problems that existed before coverage started, whether or not anyone knew about them.

Lack of maintenance. The company can ask for proof the system was serviced. No records often means no coverage.

Improper installation and code issues. If the old unit was installed wrong, or the new one needs upgrades to meet current code, those costs are commonly excluded. So are the extras around the job, like refrigerant, ductwork, permits, cranes and hauling the old unit away.

Repair instead of replace. The D.C. attorney general’s office notes that a company may only repair a broken item rather than replace it, may insist on a specific brand for replacements and limit your choice of contractor, and often makes you take several steps before it agrees to anything.

None of that makes the product a scam, but it does mean the limits in the contract decide what it’s worth. So before you pay for one, or renew the one you’ve got, run your own house through the math.

Run the math on your own house

Give it an hour and bring a flashlight.

1. List the big systems and their ages. Furnace, air conditioner or heat pump, water heater, then the major appliances. The manufacture date is on each unit’s data plate (the label with the model and serial numbers). Anything in the last third of its expected life is a candidate to fail on your watch. Not sure how long yours should last? Ask the technician at your next service visit how many years that model usually lasts.
2. Check what’s already covered. New equipment often carries a manufacturer’s parts warranty of several years. A newly built home has a builder’s warranty. Some credit cards extend the warranty on appliances bought with the card. Don’t pay twice for the same protection.
3. Get the sample contract, not the brochure. Any company will send it if you ask. Find three numbers: the cap per system, the cap per year and the service fee. Write them next to the replacement costs in the table above.
4. Add up a realistic year. Take the average plan at $876, plus two service visits at $108 each, and you’re at $1,092 for the year. Now say the air conditioner dies, the job is $7,500 and the plan’s cap is $3,000. You pay $4,500 on the job plus the $1,092, or $5,592 in all, instead of $7,500 without a plan. That’s about $1,900 better off in a bad year. Five quiet years with no big failure, though, and you’ve paid $4,380 in plan fees alone, plus any service calls, for nothing you used.
5. Price the alternative. The same $73 a month in a savings account is $876 a year and about $4,400 after five years, plus interest, with no caps and no exclusions. The FTC makes the same point about service contracts in general: putting money aside in savings can be the better option. It only works if you really do set the money aside.
6. Read the maintenance clause. If the contract requires regular service, schedule it and keep the receipts. An annual HVAC tune-up is cheap next to a denied claim.
7. Check the company. The FTC’s line on service contracts applies here: a contract is only as good as the company behind it. Look up complaints with your state attorney general and the Better Business Bureau, confirm any license your state requires, and find out how long the company’s been around. Read the cancellation terms and refund rules before you pay.

When does a warranty make sense?

A home warranty is one tool of several, and it makes sense to price them together.

Compare plans on the same terms. If you decide to buy, get quotes from several companies for the same set of systems, and lay the caps, service fees and exclusions side by side. The cheapest monthly price often comes with the lowest HVAC cap. I’d trust a plan that prints its heating and cooling limit in plain dollars over one that says “up to” in the fine print.

Get a replacement quote before the emergency. If your system is near the end, ask two or three licensed HVAC contractors for a written replacement estimate now. Contractors are less rushed in the off-season, quotes can be cheaper, and you’ll know the real local price for your house instead of a national average. Same goes for a water heater past ten years. Ask about utility and state rebates, too. Don’t count on the federal energy efficient home improvement credit to soften the bill, though. The IRS says equipment placed in service after 2025, meaning installed and ready to use, doesn’t qualify.

Ask your home insurer about equipment breakdown coverage. Some insurers sell an add-on for sudden mechanical or electrical failure of home systems. It’s not a warranty and it still excludes gradual wear, so ask what it costs and what it leaves out.

Consider a maintenance plan. Many local HVAC companies sell annual service agreements with scheduled tune-ups and priority booking. They won’t buy you a new system, but they can stretch the life of the old one, and they create exactly the service records a warranty company will ask for.

What if the warranty company says no?

Start with the contract. Ask for the denial in writing, with the section of the contract the company is relying on. The FTC suggests putting your repair request in writing and sending it certified mail with a return receipt, so you have proof of who got it.

Get a second opinion from an independent licensed technician, in writing, on what failed and why, ideally from someone who has never worked for the warranty company’s network and has no stake in which way the answer goes. If the denial cites a pre-existing condition or poor maintenance, your service records and that letter are your evidence.

If the company won’t budge, file complaints with your state attorney general’s consumer protection office and with whichever state agency oversees these contracts. Then read the dispute clause. Many contracts call for binding arbitration, where a private arbitrator decides and you usually can’t go to court afterward, and the FTC notes that while it’s generally cheaper than court, you can expect to pay up to several thousand dollars depending on the complexity. Weigh that against the amount at stake. Small claims court may be open to you if the contract allows it.

A word about the mail and the phone. Homeowners get a steady stream of urgent-looking notices saying a warranty is about to expire. Treat them as ads. The FTC warns about exactly this “act now, your warranty is about to expire” pitch in telemarketing for service contracts. If you do have a contract, the renewal terms are in it. Check there, and pull out the page with your HVAC cap while you’re at it.