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What is a home warranty?

How home warranties work and when you need one

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by Jessica Render ConsumerAffairs Research Team
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A home warranty is also known as a residential service contract. The contract covers the repair or replacement of home systems such as heating, cooling, plumbing and electrical and home appliances like water heaters or stoves.

This is different from homeowners insurance, which is required by nearly all mortgage lenders. Home insurance typically covers repair costs after damage to the physical structure of the home due to fire, natural disasters, theft or vandalism.

By contrast, a home warranty is a voluntary contract. Many people purchase a plan when buying a new home to protect against the cost of potential repairs or replacements, but you can obtain one at any point during homeownership.

Home warranty basics

  • A home warranty is a service contract for household items that break down from normal wear and tear.
  • Plans cover essential home systems and major appliances, including the electrical system, HVAC system, plumbing system, refrigerator, oven, dishwasher and washer and dryer.
  • Home warranties do not cover damage from natural disasters, theft or vandalism and are not the same as home insurance.
  • The average cost of a home warranty is $600 per year for comprehensive coverage. You also pay a service call fee each time a technician visits to make a repair — this is similar to a copayment at a doctor's office.
  • You can buy a home warranty at any time, but it’s particularly common to get one during the home purchase process.

How do home warranties work?

While the two products are fundamentally different, home warranties work similarly to insurance. You pay a monthly premium for coverage, file a claim to use your coverage and pay a deductible — called a service call fee for a home warranty — before coverage kicks in.

Homeowners sign a service contract, typically for one year, with a home warranty company for the level of coverage they want and follow the process below to have a covered appliance or system repaired or replaced when it breaks down from normal use.

  1. File a claim: Most companies let you file a claim 24/7, either online or over the phone.
  2. Pay a service fee: You pay a service call fee — typically between $60 and $125 per visit — for the home warranty company to send a licensed contractor to your home to diagnose the problem.
  3. Schedule a contractor visit: The assigned technician comes to your home to examine the malfunctioning appliance or system.
  4. Repair or replace the item: The technician will communicate with the home warranty company to confirm coverage for the breakdown. If the claim is approved, the technician repairs or replaces the system or appliance.
  5. Pay nothing further: The home warranty company covers the cost of the repair or replacement (as long as it doesn’t exceed the maximum coverage amount).

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    Home warranty vs. homeowners insurance

    Home warranties provide coverage for repair and replacement of systems and appliances that stop working in the course of regular use, while homeowners insurance covers damage to or loss of these items as a result of events including lightning, fire and theft.

    Type of coverageHome warrantyHome insurance
    Physical structure of your home
    Theft of or damage to personal property
    Liability protection if someone gets hurt on your property
    Breakdown of home systems due to wear and tear
    Breakdown of home appliances due to wear and tear
    Home warranty
    Home insurance

    Do I need both home insurance and a home warranty?

    Home warranties are optional for homeowners, while homeowners insurance is generally required if the homeowner has a mortgage. Having both homeowners insurance and a home warranty gives you a greater degree of financial security and coverage for your home. A home warranty is especially useful if you have older appliances or systems that are no longer covered by the manufacturer or if you don’t want to pay 100% out of pocket for a repair when something malfunctions.

    How to get a home warranty

    If you’re in a house with newer appliances and systems, chances are many of them are still covered under the original manufacturer's warranty.

    Purchasing a home warranty contract is a fairly straightforward process, but there are certain steps you’ll want to follow and factors to consider before deciding on a policy.

    1. Assess your needs: If you’re thinking about getting a home warranty for a home you’re purchasing, start by making an inventory of all the major appliances and home systems that are included in your new house. Take note of how old they are, when they were last serviced and if any of them already come with a warranty. A home warranty is only worth it if there’s a reasonable likelihood you’ll need to repair or replace something that’s not covered by an original warranty within the next year.
    2. Shop around for plans: As with any insurance policy you buy, you should get quotes from at least two or three home warranty providers. Each will be able to offer something different, but your typical home warranty cost will fall into the range of $300 to $600 per year. If you have specific needs for your home, like coverage for a pool, septic tank or sump pump, make sure the provider includes these add-ons in your estimate.
    3. Examine your plan carefully: It’s important to read the fine print for any coverage, but this is especially true for home warranties. Make sure everything you think covered is in fact covered — don’t assume anything. For example, a home warranty may exclude repairs for certain parts of a dishwasher, or it may only cover one of your two refrigerators. Each plan stipulates key things like what components are excluded, the maximum coverage amounts, the waiting period before coverage starts and how long a repair is guaranteed.
    4. Negotiate with the seller if buying a home: If you’re in a buyer’s market, you may be able to get the seller to cover the cost of your warranty as part of your closing negotiations. Sometimes the seller will even market their home to include a free, yearlong home warranty plan to entice buyers. Note, however, that the seller is under no obligation to provide one and will only do so if they feel it’s worth it.

    Home warranty FAQ

    A home warranty plan is a service contract that covers the cost of repairs and replacements of household appliances and systems that break down from wear and tear. These plans generally last for a year and require you to pay a service call fee from $60 to $125 for each claim. The provider chooses a contractor from its network to complete the work.
    Most home warranties last one year, though you can renew at the end of each year. There is often a 30-day waiting period before coverage begins, though many companies will waive this requirement if you purchase the warranty as part of a real estate transaction or you are switching from a different provider and there’s no lapse in coverage.
    No, a home warranty is not required. Home warranties are an optional purchase that can save homeowners hundreds of dollars in repair and replacement costs on important household appliances and systems.
    If you're still in the process of purchasing your home, ask your real estate agent if a warranty is included. If you've already closed on your home, you can contact your agent or review your closing documents for information about a home warranty.
    Yes, you can purchase a home warranty at any time, regardless of the age of your systems and appliances.
    Most companies have a 30-day waiting period before home warranty coverage starts. Companies allow you to cancel during this period for a full refund. Some companies waive the waiting period if you purchase a home warranty as part of a real estate transaction or if you are switching providers with no break in coverage.
    For sellers, a home warranty offers buyers a more attractive package and protects them from unexpected repair costs in the first year of ownership. Sellers may choose the warranty company or offer the buyer a warranty allowance so they can shop for their own coverage.

    Sellers can also purchase a seller's warranty so repair costs are covered during the listing and closing process. For more information, read about the differences in home warranties for buyers and sellers.

    In some cases, a home seller will offer a warranty to incentivize buyers and reduce the financial risks of ownership in the first year. Homebuyers may also choose to purchase their own warranty through a chosen provider. If you’re building a new home, look into a homebuilders warranty.

    Bottom line: Should I get a home warranty?

    Home warranties are not for everyone, so be wary of sales associates or real estate agents who try to push a policy on you by claiming that all buyers need one. That said, if you have legitimate concerns about the longevity of essential home systems and appliances, a home warranty could end up saving you big bucks down the road.

    For example, if you’re buying a house with older appliances that you know haven’t been serviced in a while, a home warranty could be just the kind of insurance you need to protect yourself against future repair costs. However, if you’re in a house with newer appliances and systems, chances are many of them are still covered under the original manufacturer's warranty. In that case, don’t purchase coverage you don’t need.

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    by Jessica Render ConsumerAffairs Research Team

    As a member of the ConsumerAffairs research team, Jessica Render is dedicated to providing well-researched, valuable content designed to help consumers make informed purchase decisions they can feel confident making. She holds a degree in journalism from Oral Roberts University.