What is a Home Warranty?
A home warranty is a service contract that helps homeowners cover costly, unexpected repairs on home systems and appliances that break down due to normal wear and tear.
Many home sellers and real estate agents buy a home warranty as a buyer’s incentive. Owners of existing homes can purchase a home warranty to cover items such as heating and air conditioning systems, plumbing and electrical systems and appliances. Home warranties can provide peace of mind for homeowners. Home warranty companies have been providing repair and replacement services to consumers since the 1970s.
It is important to note that a home warranty is not the same thing as homeowners’ insurance. In cases of regular maintenance, your insurance will not cover repairs. You should consider a home warranty as a supplement to your homeowner’s insurance policy. Be sure to compare your options and read reviews on ConsumerAffairs.com before you make a decision!
Before choosing a home warranty, it is important to research plans and get your questions answered before you have a problem. First, read the plan thoroughly to know which appliances are covered and check for coverage limits. The quality and age of your appliances will determine which plan you need. When necessary, opt for extra coverage. Some providers allow you to build your own home warranty plan.
What does a home warranty cover?
What’s covered by your home warranty will vary based on your location and the level of coverage you choose. All home warranty plans are different. Most providers offer coverage for heating and electrical systems, plumbing stoppage, water heaters, duct-work, refrigerators, dishwashers and even ceiling fans. You can add additional coverage to your plan for items like pools and spas, well pumps, septic pumps and stand-alone freezers. Here are some tips for choosing a home warranty plan that fits your needs and budget:
- Read the plan: Before purchasing a home warranty policy or relying on one, read the details so you understand which appliances and systems are covered. For example, a basic plan might cover your heating system but not your air conditioning unit. On the other hand, you don’t want to pay for coverage you won’t use. If you’ve recently updated your appliances, you may want to opt for a systems-only plan. Some providers, like American Home Shield, allow you to build your own plan–which might make sense for some homeowners.
- Check for coverage limits: Every home warranty company limits their coverage for specific systems and appliances to a maximum of $500, $1000 or $1500, which may not fully pay for a replacement if one is needed. Ask about the limits before purchasing a warranty.
- Opt for extra coverage when necessary: If you want to have your garage door opener, central vacuum system or septic system covered by a home warranty, you may have to pay for enhanced or optional coverage. Before choosing a home warranty provider, make sure they offer coverage for any special or unusual home items you want to protect.
How much does a home warranty cost?
Next, look at the costs associated with a home warranty. The average cost of a home warranty service contract ranges between $350-600 per year, as well as a fee per service call. The cost will vary depending on your state and the level of coverage you choose. To decide if a home warranty is worth it, first estimate the cost of repairing or replacing your appliances and systems, then compare that to the annual cost of a home warranty plus the service fees to determine if one is right for you.
- Trade service call fees: A trade service call fee is the amount due to the contractor when they visit your home. Service fees vary according to the home warranty provider and plan you choose, but average $60 to $100 per service call. Find out if you’re charged a fee for repeat visits for the same problem.
- Available discounts: Some home warranty companies, like Select Home Warranty, offer discounts for customers who opt for multiple year coverage. If you plan on renewing your home warranty, talk to your provider about any discounts that might be available when you sign up.
Are home warranties worth it?
When appliances like your refrigerator, water heater or air conditioning unit break down from normal wear and tear, homeowner’s insurance probably won’t cover repair or replacement. If your appliance is old enough to have passed its manufacturer warranty, you’ll be covering repair or replacement out of pocket. You can avoid this scenario by purchasing a home warranty before the problem occurs.
- It depends on the age of your home: If you’re in a brand new home, a manufacturer’s warranty on your new appliances will cover you for a year or longer. And if you have both a home warranty and a manufacturer’s warranty at the same time, the manufacturer’s warranty will pay for the repairs, not the home warranty. But if you’re in an older home, with older appliances, those appliances might soon fail. A 15-year-old refrigerator is probably on its way out, and unless you’ve got the cash to pay for a new one, a home warranty might be a wise investment.
- It depends on which items you want to cover: Home warranty companies set their own rules about which appliances they will and won’t cover, as well as how much money they’ll supply for repairs or replacements. A new AC unit might cost $4,000, but a home warranty company might only cover $2,000 of that. Most home warranty companies offer a variety of coverage plans, so shop around and find coverage based on the appliances you’re most concerned about.
What’s the difference between a home warranty vs. home insurance?
Homeowner’s insurance is vital for the protection of your house; in fact, homeowners insurance is required by most lenders if you take out a mortgage loan to finance your home. A home insurance policy only protects your house from damage or loss caused by specific events like theft, fire, natural disasters or vandalism. So, if your fridge is destroyed in a fire, homeowners insurance will replace it; if it finally breaks down after years of use, your home insurance won’t cover it. A home warranty is a service contract that can supplement your insurance, depending on what you need.
Can I choose my home warranty service provider?
Most home warranty companies require the use of their service providers to make sure the work is completed appropriately and for a reasonable fee. Many homeowners appreciate this perk because it relieves them of the burden of finding someone qualified.
Don’t expect to be reimbursed for work you do yourself or for expenses incurred if you hire your own contractor. Make sure you’re comfortable with the contractors the company will employ by asking yourself the following questions:
- Are the service providers licensed?: Read the fine print of the home warranty to find out whether the company requires contractors to be licensed, bonded and insured. Also ask how the company screens potential contractors and how they’ll communicate with you about the service providers who will be in your home.
- How will the company handle a complaint?: If you’re unhappy with the service you receive, find out if the company will send out a different contractor and whether or not you’ll be charged an additional service fee. Check to see if the warranty company evaluates customer satisfaction with their service providers.
Why are some home warranty claims denied?
A home warranty may not pay repair costs for all covered appliances and systems. Be aware of the circumstances under which the home warranty company can deny payment.
- Improper installation or maintenance: Home warranties only cover working appliances and systems, so if there’s evidence that your sump pump was installed incorrectly or your water heater was not properly maintained, the repair payment could be denied.
- Unusual wear and tear: Items that are normally covered by a home warranty policy, such as a whirlpool tub, may not be covered if your tub shows signs of being improperly used.
- Code violations and permits: If the components of your heating or electrical systems don’t meet local building codes, the warranty company won’t necessarily repair them. Most companies will not complete work if a permit is needed, and only a few warranty companies pay permit fees.
Types of Home Warranties
Written by Michele Lerner, Mortgage & Real Estate Contributing Editor, author of “Homebuying: Tough Times, First Time, Any Time“. She has been writing about personal finance and real estate for more than two decades. Michele writes for regional, national and international publications in print and online for a variety of audiences including consumers, real estate investors, business owners and real estate professionals.
Disclaimer: Information in this guide is general in nature and is intended for informational purposes only; it is not legal, health, investment or tax advice. ConsumerAffairs.com makes no representation as to the accuracy of the information provided and assumes no liability for any damages or loss arising from its use.
photo taken from Nevada Dream Team