What is a home warranty?
A home warranty is a service contract that covers expensive, unexpected repairs and replacement for home systems and major appliances when they break down.
Home warranty coverage: There are a wide variety of home warranty plans, cheaper plans offer basic levels of protection, while more expensive plans provide comprehensive coverage.
Home warranty cost: Depending on the provider and level of coverage you choose, your annual cost can range from $300 to $600 on average. You will also be charged a service call fee each time a technician is sent to your home.
How do home warranties work?
Home warranties work very similar to how insurance works. Homeowners sign a service contract, typically for one year, with a home warranty company for the level of coverage they need.
- When a covered system or appliance breaks down, you'll file a claim with your home warranty company. Most companies offer 24/7 customer service, either online or over the phone, and many promise next-day service for major issues.
- The home warranty company will choose a service provider to help.
- The service provider will contact you to schedule an appointment with their technician.
- The technician will come to your home to assess and fix the problem based on your coverage and what's approved by your home warranty provider.
- You'll pay a service call fee and the warranty company covers the rest of the cost. Service fees typically cost between $50 and $100 per visit, and are usually paid directly to the contractor — similar to paying a copay at the doctor’s office.
While home warranties cover a wide-array of breakdowns, there are some cases where a homeowner’s claim may be denied by a warranty company. The best way to avoid being denied coverage is to carefully read and choose the right service contract for your home up front. Here are some common reasons why home warranty claims are denied:
- 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.
- Known or unknown pre-existing conditions
Most warranty companies won’t cover the repair of an appliance or system that had a pre-existing condition when the warranty was purchased.
A plan that works for a home built five years ago may not be a good fit for a 20-year-old home, so it’s important to truly understand the coverage plan you’re selecting and how it will work with your home’s needs.
Home warranty vs Home insurance
|Type of Coverage||Home warranty||Home insurance|
|Home structure and foundation|
|Theft or damage to your home or property|
|Liability protection if someone gets hurt on your property|
|Home system repair or replacement|
|Home appliance repair or replacement|
Do I need both home insurance and a home warranty?
Home warranties are optional for homeowners, while insurance is generally required for mortgaged homes. Since home warranties and home insurance provide protection for different parts of your home, you'll need both in order for your home to be completely protected. A home warranty covers what your home insurance doesn’t and helps to provide a little extra peace of mind.
Pros and cons of home warranties
Home warranties help make the repair process straightforward by giving homeowners one number to call and one service fee to pay any time something breaks in their home instead of having to search for a specialist each time and hope their fees don’t break the budget.
A home warranty can easily pay for itself the first time you use it for a major repair, but many people who have home warranties don’t end up needing them, meaning that monthly payment is adding up, but going nowhere.
Something else to consider when weighing the pros and cons of buying a home warranty is the control you lose in choosing the service provider or technician you want. The home warranty provider will send out one of their licensed technicians each time.
- Provides peace of mind
- Saves on major repairs
- Not everything is covered
- Can’t pick your technician
- You might never use it
Bottom line: Home warranties provide peace of mind at a relatively affordable price. They can save you money on costly repairs, particularly on older appliances. If that extra assurance is valuable to you, you may enjoy the benefits of having a home warranty.