What is a Home Warranty?
Home systems and appliance warranties protect the elements of your home that aren’t covered by homeowners insurance. Things like your dishwasher, HVAC system, and water heater are often covered under a home warranty to protect you in case they break.
If you’re moving and looking for more information on home warranties, we’ve got you covered.
What is a home warranty?
A home warranty is a contract between a home warranty company and a homeowner that helps cover the costs of repairing or replacing the major systems and appliances of your home. These components are items such as the furnace, the garbage disposal, and some large appliances.
A basic home warranty will not cover components that are part of the home’s structure, such as the roof and the flooring. While coverage varies between providers, contracts usually last one year with the option to renew or cancel service once the year is up.
What is the difference between a home warranty and home insurance?
While they might seem similar, home insurance policies and home warranties cover very different things. Home insurance covers necessary repairs to your home if it’s damaged or destroyed by lightning, fire, theft, and other major perils.
Home warranties cover damage to mechanical systems and appliances in your home. These include items such as your HVAC system or washing machine if they break down from regular use.
Additionally, homeowners insurance is usually required by mortgage lenders, but home warranties are optional. Since home warranties often cover components of your home that aren’t covered by insurance, it’s worth checking out your coverage options.
How does a home warranty work?
You can browse and purchase home warranty plans online or over the phone. You can also purchase them in-store, but for many, it’s more convenient to go the online route.
Unless you purchased a plan while buying your home, your home warranty will generally go into effect 30 days after you sign up. If an eligible item breaks down before 30 days pass, the company attributes the failure to a pre-existing condition, which could leave you responsible for the repairs.
Once your home warranty kicks in, if something under your warranty breaks, don’t worry. The steps for filing a claim are similar to those you’d have to take if you didn’t have coverage. However, there is one big advantage. The warranty company has already established relationships with reliable service providers and contractors in your area, taking care of the search process for you.
All plans are unique and each company has its own way of doing business, but the steps to filing a claim are usually quite similar:
- The homeowner calls their home warranty company and tells them what’s broken.
- The home warranty company calls their trusted service provider.
- The provider calls the homeowner to schedule an appointment.
- The provider sends their contractor to the home to repair the broken component. If they can’t repair it, depending on the homeowner’s coverage, their home systems and appliance warranty may pay for its replacement.
- The homeowner pays a trade fee and the home warranty company pays their service provider. Trade fees are similar to copays in that they’re the amount you have to pay for service. They consist of a flat fee that you pay each time you need to get repairs done.
Filing this claim is less risky than filing an insurance claim. Unlike home insurance, your monthly premium will not go up if you file a home warranty claim. That said, you may want to be sure that your policy covers your household systems and appliances. So, if you’re buying a home, it’s wise to check with your warranty provider before purchasing your home systems and appliance warranty.
How much does it cost?
There are many different types of coverage that will impact the cost of your plan. Plus, each warranty company has its own set of plans with various limitations and specific terminology.
Home warranty plans tyically start small, covering standard systems such as water heaters and HVAC systems. In general, the price increases as you expand your plan with additional appliances. Home warranty prices also fluctuate based on the age of the property and the property type, so townhomes, condos, and single-family homes may have different price points.
Home warranties have annual premiums along with trade fees (also known as service fees). Home warranty premiums range from around $432-$720 per year, and trade fees may range from $45-$125 depending on the company and the service. Remember that you must pay these fees to receive a service, and you pay them every time a provider sends someone to your home, so they can add up.
Speaking of adding up, it’s a good idea to do some number-crunching before purchasing a home appliance warranty. Take stock of the appliances you have and their condition. Then, shop around for the warranty that works with your household’s needs and your budget. Keep in mind that replacing your forced A/C system could cost up to $4,000—or more—while the annual warranty payments are a fraction of the price. Be sure to run the numbers to ensure your home warranty is worth the investment.
What are the benefits of a home warranty?
For those purchasing a home
For new home buyers, a home warranty can provide peace of mind. Since the home’s appliances and systems are all part of the deal, a home warranty provides some financial protection in case these elements of your new home break.
For those selling a home
What is a home warranty worth to a home seller? Well, many buyers feel more secure investing in a home that’s covered. So, a home warranty can help speed up the selling process. If you’re looking to sell your home quickly, or you simply want to keep the process as streamlined as possible, taking out a home appliance and services warranty could be a great solution for you.
What does a home warranty cover?
You’ll want to check the specifics of any home warranty plan you’re considering to know exactly what it covers. However, the most basic home appliance warranties tend to cover select appliances and built-in systems, such as your plumbing and electrical networks.
These are the most commonly covered appliances and systems:
- Exhaust fans
- Ovens and stoves
- Built-in microwaves
- Garbage disposals
- Ceiling fans
- Water heaters
- Heating systems
- Plumbing systems
- Electrical systems
A basic home warranty covers many items but not everything. Most basic plans will not cover outdoor components, for example.
Below is a list of other items that a basic home warranty is unlikely to cover:
- Spas and pools
- Window A/C units
- Septic systems
- Garage doors
- Alarm system wiring
In addition to these components, home warranty providers can refuse coverage for items depending on their condition when you take out the plan. They may not cover that 20-year-old exhaust fan, for instance, if it’s not in tip-top shape. Be sure that you know exactly what your policy covers before signing on to ensure that you purchase the best coverage possible for your household.
What if my claim gets denied?
As mentioned, warranty companies can refuse to cover certain components of your home or deny your claim entirely. It’s important to be diligent and review the language of your agreement carefully. What good is a home warranty if it doesn’t cover your items?
These are the most common reasons home appliance warranty companies deny claims:
- Lack of maintenance – It’s the homeowner’s responsibility to care for their systems, so keep track of your maintenance records.
- Improper installation – Components that aren’t installed properly aren’t covered. So, you may want to go ahead and pay the extra cash for a professional’s expertise.
- Code violations – If any of your appliances or systems violate safety codes, your home warranty may not cover them.
- Excluded appliance clause – These include all of the appliances that aren’t covered by your warranty. So, be sure to read your service contract carefully before agreeing to the coverage.
It’s important for new home buyers to be aware of these exclusions when they purchase a home warranty. The buyer becomes responsible for the contents of the home upon closing, and the provider can still deny the claim if it falls under one of the categories listed above. This means, for instance, that if the dishwasher wasn’t installed to code or the water heater wasn’t maintained properly, the company could deny the new homebuyer’s claim.
For this reason, it’s important to be diligent when reading over the home inspection. If there’s a pre-existing condition listed on the inspection and you miss it, the provider may not cover the repairs.
If this happens, reach out to your real estate agent and express your concerns. Your agent can then act as your representative when communicating with your home warranty company. Otherwise, you’ll have to find a contractor on your own to replace or repair the component, which can be costly.
If you make the decision to dispute your claim denial, be careful. It can be a long, costly process so weigh your options. Is this dispute worth it financially? If you want to challenge your warranty company’s decision, but don’t want to end up in small claims court, the best thing to do is call their customer service department. Ask to speak with the supervisor and remember to remain assertive but pleasant. You can still be polite as you get your point across.
Get the protection you need with a home warranty
Finding the right coverage for your home is crucial to protecting your finances if something breaks. With this guide and all of the home warranty plans available, you can find a plan that fits your needs.