How does a home warranty work?

What is a home warranty?

A home warranty is almost like a type of insurance. It’s a service contract that covers home appliances and systems, like your fridge, oven or HVAC system, that break down due to everyday wear and tear.

You pay a yearly or monthly fee and a service fee for each claim. In turn, the home warranty company will schedule a repair technician to come to your home and the technician will either repair the covered item or replace it if it can’t be fixed.

How does a home warranty differ from home insurance or a builder’s warranty?

It’s easy to confuse a home warranty with home insurance, but they serve very different purposes. Home insurance covers problems with things around your home due to major perils like fires, theft and natural disasters. On the other hand, a home warranty covers the everyday wear and tear on your major systems and appliances that home insurance doesn’t typically cover.

A home warranty also shouldn’t be confused with a builder’s warranty. This is a warranty that you get from your home builder that covers defects in your new home.

What does a home warranty cover?

Home warranty coverage can vary widely depending on the company and the plan, but most home warranties typically include:

• Major appliances like refrigerators, dishwashers, ovens, microwaves, garbage disposals, washers, and dryers
• Systems like heating, air conditioning, electrical, plumbing and sometimes even roof leaks or gutter cleaning
• Add-ons (optional items) like pools, spa equipment, well pumps and septic systems

Each plan is different, so it's important to read the details of what the home warranty company includes. For instance, if you have a freestanding ice maker or a second refrigerator, you might need to pay a little extra to include them in your coverage.

What does a home warranty not cover?

A home warranty can be a fantastic buffer against unexpected expenses when home appliances and systems break down. However, it's important to understand what a home warranty doesn’t cover. Here's a rundown of typical exclusions you might encounter with a home warranty:

• Preexisting conditions: Most home warranty plans will not cover issues that were present before the coverage began. This includes any problems you knew or should have known through a home inspection.
• Improper maintenance: If an appliance or system has failed due to lack of proper maintenance or neglect, it's likely not covered. This means homeowners need to keep up with regular upkeep to ensure coverage.
• Cosmetic issues: Home warranties generally do not cover anything that doesn’t affect the item's functioning, like scratches, dents or aesthetic imperfections.
• Nonstandard installations: If appliances or systems were not installed correctly or don’t meet local building codes, home warranties may not cover repairs or replacements.
• Commercial-grade appliances or systems: Home warranties typically cover standard residential appliances and systems. If you have commercial-grade equipment, you'll likely need a specialized plan.
• Items under manufacturer's warranty: Items still under a manufacturer's warranty are usually not covered by a home warranty because the manufacturer’s guarantee already protects them.
• Structural components: A home warranty does not cover components like doors, windows and the foundation of the home.
• Outdoor items: Unless specifically stated in your contract, outdoor items like sprinklers, outdoor lighting and other yard-related equipment are usually not covered.
• Limit caps: Many home warranties have caps or limits on how much they will pay for a particular repair or replacement in a given contract term. If the cost exceeds this limit, the homeowner will be responsible for the difference.
• Certain types of damage: Damage due to natural disasters, fires, theft or vandalism is not covered under home warranties but typically falls under homeowners' insurance policies.

How does the home warranty process work?

Here’s what you can expect from a home warranty:

1. You notice a problem. Your air conditioner starts making a strange noise, or your fridge stops cooling.
2. File a claim. You call your home warranty company or submit a claim online.
3. Service call. The warranty company sends a technician from their network to assess the problem.
4. Repair or replace. If the technician can fix the issue, they will. If not, your home warranty may cover a replacement.
5. You pay a service fee. Each time a technician visits, you’ll pay a predetermined service fee (also called a deductible).

How much does a home warranty cost?

The cost of a home warranty typically depends on the package and add-ons you choose. Home warranties usually cost between $450 and $600, but for the most comprehensive coverage, you might look at spending between $1,200 and $1,400. You’ll also need to pay a service fee for each technician visit. Deductibles typically cost $75 to $150.

How to choose a home warranty

Choosing a home warranty just takes a little research. Here are some tips:

• Make a list of home items and their ages, and check if any are still under a manufacturer's warranty.
• Choose an appliance-only plan if your appliances are old but your systems are new.
• Opt for a systems-only plan if you're more concerned about major system repairs.
• Consider a combination plan for broader coverage if most home items are aging.
• Compare pricing and plans. Get quotes from at least three companies to compare prices.
• Consider the cost of optional coverage for items like a second refrigerator or pool.
• Pay attention to the deductible or service call fee, which affects monthly plan costs.
• Check for hidden fees or payout caps, such as a limit on what the company will contribute towards a single repair.
• Understand your contract. Read a sample contract thoroughly to understand what’s included and what’s not.

Bottom line

A home warranty is all about convenience and cost savings. It means not having to hunt for a technician when your plumbing goes haywire, or your electrical system goes on the fritz. It's about making a single call and then stepping back while the problem is handled. Plus, a home warranty can help manage unexpected repair costs that can throw a budget off track.