Home warranties are designed to insure the home against mechanical failures in plumbing, heating, electrical, and installed appliances.

How do they work? For an annual fee anywhere between $250 to $600, the warranty company hires local repair companies to provide service in case of mechanical failure when contacted by the homeowner. If the mechanical breakdown is covered in the warranty contract, then the homeowner pays a fee for the service visit, around $25-$75. 

There are several important points to remember when choosing a home warranty:

  1. Carefully read the service agreement to be clear on what is and is not covered. Some contracts could intentionally have loopholes. 
  2. Research the customer service track record of the company by looking on the internet for any customer reviews.
  3. Check that the company has a solid financial history. How long has it been in business? How has it been performing for the past several years?

For more information on how to choose the right home warranty, I recommend this article from MSN Money.