After you buy an existing home, let's face it—the last thing you want to worry about is a broken big-ticket item like the air conditioner or oven. For this reason, it's a good idea to get a home warranty plan (also called a residential service contract).
The general idea behind a home warranty is this: If a covered item malfunctions, the homeowner calls the home warranty company, which contacts a contracted local service provider. The local provider makes an appointment with the homeowner to evaluate the failed equipment. If the item can be fixed, it will be. If it cannot be repaired, the policy pays for a replacement and installation.
Home warranties offer different levels of protection. Some provide comprehensive protection, while others are more limited—for instance, they may not cover the AC unit. Special coverage will likely be needed if you've got a swimming pool or a hot tub in your new place. Choose your policy according to your needs and make sure you know the level of coverage you're paying for.
Most warranties are prepaid for a year, and range from about $250 to $600. Sometimes sellers will include a one-year home warranty as an incentive to you, but they're also doing it so that you don't call them or their agent if an item
Keep in mind that you must renew your residential service contract if you want to continue coverage after the initial term. You may decide that it's better to have the protection and not need it than to need it and not have it.