As a rule of thumb, a home warranty covers what home insurance does not cover—with one important exclusion: home warranties rarely provide coverage for any problems with the structure’s workmanship or materials.

To illustrate: you can suffer a financial loss from your home in three primary ways. The home can be damaged by a storm, fire, theft, or other external influence. The home’s systems or appliances can fail from normal wear and tear. And the structure itself can have problems because of issues with workmanship or materials.

Home insurance would cover the damage caused by external factors, such as a tornado. And a home warranty would cover the damage caused by the failure of the systems or appliances. But additional insurance for the structure’s workmanship or materials is usually only available for newly-constructed houses in the form of a builders warranty (problems with the house’s structure typically occur within the first few months of construction).

Please note: contractors frequently offer a builders warranty to new home buyers, which includes both a home warranty (which the contractor purchases) and a structural warranty (which the contractor underwrites or purchases as a separate policy).

One other significant difference between a home warranty and home insurance is that lenders only require home insurance.

Mobile and manufactured homes are treated differently from single-family conventional homes by home warranty providers. These policies factor in the potential for damage during the installation process. The policies for condos are also uniquely worded because a condo may share some mechanical components, such as plumbing, with other condos in the building.

The different home warranty companies offer various options—based on the level of coverage desired.

A basic warranty covers only critical systems and appliances (such as HVAC equipment, refrigerator, and stove). An upgraded warranty covers additional appliances and systems (such as a garbage disposal, a garage door opener, and a central vacuum system).

A structural warranty is usually available only by purchasing it through the initial builder. A few of the most comprehensive home warranties may offer minimal structural coverage.

You can request sample contracts from various home warranty companies. By reading all the fine print, you will be able to determine both coverage and exclusions. And then, you can search for claim payment satisfaction with former and current insureds.

But our top 10 list of the best home warranty companies has already been thoroughly vetted for this and other information. Save yourself time and potential problems by visiting our online directory at RealEstateBees.com.

A home warranty does not usually require an onsite inspection, but relies on the application information. A home warranty company can bind coverage based on a home inspector's report. But the home inspection is always a separate charge. Also, some home inspectors offer a short-term house warranty.

No home warranty company will cover a known pre-existing problem with a house. Known pre-existing issues are noted as exclusions on the insurance contract. Unknown pre-existing problems are excluded if a component fails, and the technician determines that the cause of failure was pre-existing. Essentially, the inspection of an appliance or system is done at the time of failure. If the cause of the failure pre-dates the warranty policy, the claim will be denied.

Home warranty companies make money by spending less on claims and overhead than they take in through premiums. Their average premiums collected minus there claims and overhead equals their profit.

The price of a 10 year structural warranty is typically based on the cost of the house, the experience of the builder, and the location of the property. Such a warranty won't cost more than a homeowners policy, but the rates are high. A structural warranty is usually purchased by a builder for new construction as a part of a builders warranty.

The typical home protection plan for a buyer or a seller lasts for 12 months. The average cost for coverage ranges from $300 to $1500 per year—depending on the size of the home and how comprehensive the coverage is. Some policies can be extended for multi-year coverage. Most policies allow payments per month or per quarter.

The prices for a home appliance warranty are the most affordable—usually a few hundred dollars per year.

The largest and most well-known national home warranty companies are Choice Home Warranty, Liberty Home Guard, Complete Protection, and American Home Shield—to name a few. American Home Shield is owned by ServiceMaster and has about 1.8 million clients.

You can change home warranty companies at any time during the contract period, but you may be charged a cancellation fee.

Warranty companies control the abuse of service calls by charging a Trade Service Call Fee. Ask about the costs of the various levels of service, because these fees vary with the level of coverage.

Understand what constitutes emergency service. As an example, your furnace goes out on the weekend in the middle of the winter. If you have no other heat source, the company will treat the service call as an emergency. If, however, you have another heat source, the service call will have to wait until the next business day.

Understand what conditions will cause a claim to be denied, such as not following recommended maintenance procedures.

Ask about early termination fees, should you decide to cancel coverage.

To find out who governs home warranty companies, contact your state's Commissioner of Insurance office. Most state Insurance Commissioners regulate home warranty companies. But some states have no regulation or oversight—giving warranty policies a buyer-beware status.

Here are some of the pros and cons of purchasing a home warranty policy:

Pros:

In the event of a problem with a covered appliance or system, a warranty can significantly reduce the cost of the repair.

Knowing that your appliances and systems are covered helps with managing a monthly budget.

Having a failure paid for by the home warranty company can prevent the homeowner from needing to finance the repair or replacement of a major system, such as HVAC equipment.

If you are trying to sell your home, including a home warranty in the purchase price is an excellent incentive for a potential buyer.

Cons:

You might be throwing away money if the house if new. New appliances and systems don't usually fail in the first few years.

Home warranties are very strict with exclusions. Any known pre-existing problems will be excluded from coverage. And any unknown pre-existing issues won't be covered if the technician states that the cause of failure predates the date of coverage.

Home warranty companies have existing relationships with repair professionals. Consequently, you might be limited in your selection of repair technicians.