Whether you’ve recently purchased an old home or are seeking to provide additional coverage for newly installed appliances, a home warranty policy can be an effective way to protect all of your home’s systems and appliances for a relatively low monthly rate.
But what exactly is covered under a home warranty? Is it worth the money? How does one work? Here, we break down all of the questions to consider before purchasing a policy for your property.
What Is a Home Warranty?
A home warranty is in essence a contract in which the homeowner pays a warranty company a monthly service fee to insure the systems and/or appliances in their home, such as a dishwasher or washing machine.
In the event that an appliance or system breaks, the company providing the home warranty ensures the items are repaired or replaced.
As such, many homeowners opt for home warranty policies because the cost of the monthly premium tends to be less than the cost of buying new home appliances or systems.
What Does a Home Warranty Cover?
While it varies from company to company, home warranties tend to cover a home’s major appliances and systems. This can include:
- Washer and dryer
- Kitchen fan
- Electrical system
- Plumbing system
- Furnace and heating system
- Garbage disposal
Home warranties can also cover roof leaks, electric garage doors, swimming pools, hot tubs, or that nice imported bidet you recently put in the master bathroom. Your policy will likely be tailored to the specific needs of your home, including the value of your appliances.
How Is It Different From Homeowner’s Insurance?
Often people don’t know the difference. Home insurance helps homeowners pay for structural damage and loss of personal property from emergencies like theft or fire. A home warranty covers replacement and repair to appliances and systems due to damage from years of wear and tear.
As homeowners insurance tends to not cover the repairing and replacement of home appliances and systems due to their inevitable break down over time, many individuals tend to purchase a home warranty as supplementary coverage to their homeowner’s insurance.
What Is the Difference Between Home Warranty and Manufacturer’s Warranty?
A manufacturer’s warranty is a guarantee by the appliance or system’s manufacturer to repair or replace the appliance or system. It is a warranty provided by the product’s manufacturer to the purchaser that ensures the manufacturer will fix their product for no cost should it break within a certain time period after the purchase.
This can be anywhere from three months to one year, although you can usually purchase an extended warranty on most home appliances and systems.
The primary difference between a home warranty and a manufacturer’s warranty is that a manufacturer’s warranty is provided solely to the individual who purchased the appliance or system; if you move into a home with existing appliances, even if they were recently purchased, you as a homeowner cannot take advantage of the manufacturer’s warranty.
Additionally, a manufacturer’s warranty is issued to each appliance or system individually, which means you’ll have to deal with each manufacturer individually if you need to repair or replace your equipment.
A home warranty, on the other hand, can cover all of your home’s appliances, regardless of the manufacturer, and will last longer than the manufacturer’s warranty provided you continue to renew your policy and make your monthly payments.
This component demonstrates the practical nature of purchasing a home warranty. While you can keep the manufacturer’s warranties on each of your individual appliances and systems in lieu of a home warranty, you would need to know how long each warranty lasts, keep track of it, and extend each warranty as needed.
Given that you may buy new appliances and home systems at different times while you continue to improve and repair your home, this can be an arduous process. Purchasing a home warranty can help consolidate your coverage into a single policy, streamlining the process of ensuring your appliances and home systems are covered.
What Will a Home Warranty Not Cover?
If your appliances or home systems are not maintained properly and subsequently break, your home warranty policy will not cover their repair or replacement. The onus of maintenance is placed on the homeowner.
For example, if the previous owner of your home failed to update the electrical system (unbeknownst to you) and one night the lights go out, this lack of maintenance could prevent you from getting your home warranty provider to repair the wiring running through your home.
This is why it’s important to obtain a home inspection to ensure your appliances and systems are installed correctly when purchasing a home warranty, so no external factors may deny you coverage later on.
“Each home warranty contract differs, but I have seen exclusions for freon, broken glass, bad roofs, cracked cement, foundation damage, and other items not directly related to a home’s appliances and system,” says real estate agent Andrew Helling.
He goes on to recommend you consider each appliance or system covered by your warranty, and double-check they’re being properly maintained. Make sure you also keep documentation of said maintenance to demonstrate to your warranty provider you’ve done the necessary due diligence.
“For example furnace filters should be changed at least every six months to avoid HVAC damage,” Helling adds. “If the filters are not changed and the system fails, the home warranty company will not cover the damaged.”
Additionally, home warranty systems tend to cover damage related to routine “wear and tear,” the damage done as a consequence of years of use.
So, if one night in a drunken rage you decide to destroy your toilet with a fireman’s axe as a cathartic act of resistance against our monstrously indifferent universe, you’ll have to foot the bill on both a new toilet and the required therapy.
When Can You Buy a Home Warranty?
Many homeowners opt in to a home warranty when they close on a new property. That said, there’s nothing stopping you from purchasing a policy after you’ve lived in your home for a couple of years, if you want the coverage, provided the appliances you want covered are all maintained properly.
Do I Need a Home Inspection for a Home Warranty?
A home inspection may be required when applying for a home warranty, depending on the company. In any event, however, a home inspection may be a good way to determine whether your appliances and systems have been installed correctly and properly maintained, which can help ensure they’ll be covered by your warranty if they break down the road.
How Much Does a Home Warranty Cost?
When you purchase a home warranty policy, you agree to pay the monthly premiums in addition to a contractor fee each time a specialist comes to examine or fix something in your home.
The average cost of a home warranty plan between $400 and $1,000 a year, according to Consumer Reports — such a variance is a consequence of differing home prices throughout the country. Real estate and industry professionals estimate that the cost is somewhere in the middle.
“Home warranties typically cost about $400 to $600 annually,” says home systems specialist Ryan Osterkamp. “Contractor visits typically range between $75 and $100 per visit.”
Your home warranty’s price will also be determined by the range of the services you purchase. Home warranty policies tend to come in three tiers: coverage of an individual appliance, coverage of all of your appliances, and coverage of your appliances in addition to your home systems (such as plumbing and electrical).
Given the wide range of costs, it helps to shop around to find a home warranty company that cover the full extent of your property’s various appliances and systems; ask for quotes from providers in your area to find the best price for your home.
Who Provides Service If Something Breaks?
While the cost of an appliance’s replacement or repair is covered by a home warranty company, it’s likely that they will subcontract out any home services to a separate home repair company.
So if your refrigerator or furnace breaks and you call your home warranty policy provider, they will most likely send a professional from a different repair company to fix your appliances.
What If I Sell My House? What Happens to the Policy?
When you sell your home, the policy follows the property, not the individual. Therefore, your policy would transfer to the new homeowner, who would hold onto it until it expires, at which point they could opt to renew it (and pay themselves) or abandon the warranty entirely.
Can I Cancel or Extend My Home Warranty?
Most home warranties are year-length contracts wherein payments are made each month; if you’re happy with your policy, it’s likely you’ll be able to extend it once your contract is up for another year at a similar price.
If you’re dissatisfied with your policy, you may be able to cancel your policy early, though you’ll likely incur a service fee. Some providers may also charge you an additional administrative fee amounting to your normal monthly payment, depending on the company and state where you have paid for a warranty.
Should you cancel your warranty, follow up with your company’s customer service line, and read your contract’s fine print, to determine how you’ll be charged for an early termination.
How Do I Make a Home Warranty Claim?
When a home system or appliance is broken or needs repair, it helps to first double-check that the problem in question is covered under your home warranty.
Once you’ve ensured it’s covered, contact your home warranty company either through their online portal or on the phone. The warranty company will in turn likely send a repair service provider to diagnose the problem; at this point they will either recommend the appliance or home system be repaired or replaced.
The repair provider will then execute the work necessary in a timely fashion, and you will be charged anywhere between $75 to $100 for the contractor visit. The remaining costs of repairing or replacing your home system or appliance will fall to your home warranty policy provider.
This is how home warranties can be effective in helping you save on home repair costs. Hypothetically, if your furnace were broken and was in need of replacement, you would pay a maximum amount of $1,100 for both the contractor visit and a year of monthly premiums on a warranty policy (which average between $400 and $1,000 per year).
If your furnace was not covered by the home warranty, you could end up paying between $3,000 and $5,000 out of pocket to replace it.
Alternatively, if the appliance in question hasn’t been properly maintained, the contractor will refuse to fix or replace the appliance or system as a service related to your home warranty. Your next step in this scenario would be to contest the denial of service or pay out-of-pocket for a repair.
What Can I Do If I’m Denied My Claim?
As home warranty providers can deny claims due to subjective criteria, such as incorrect installation or improper maintenance, you may be inclined to contest your claim denial, especially if you did your due diligence to ensure a proper payout.
Your first step will be to contact your warranty provider, requesting the forms necessary to appeal their decision. Include as much information as you can, such as the name of the representative you spoke with at the warranty company, as well as individual who assessed the appliance or home system in question.
See if you can obtain the inspection report from the repair service provider as a supporting documentation, and read up on your warranty policy provider’s appeal process. If this fails, and you still think you are in the right, you can pursue legal action in small claims court, though at that point it may be more affordable to just buy a new appliance or home system.
The best strategy is to receive a minimal home inspection when first purchasing a home warranty or when installing new appliances. This will help demonstrate to your policy provider that everything has been done by the books.
How Does a Home Warranty Company Decide Between a Repair or a Replacement?
Many home warranty companies are focused on maintaining their bottom line. As such, if it’s possible for them to repair your appliance or home system rather than replace it, they’ll probably opt for the most cost-effective option.
This is important to keep in mind when deciding to buy into a home warranty policy as opposed to paying for your own repairs — and it’s a key consideration when choosing a specific home warranty company as well.
What Are the Pros and Cons of a Home Warranty?
One frequently cited benefit of purchasing a home warranty is the comfort it brings to homeowners in terms of keeping home expenses low. This is especially true for homes with appliances and systems that are a bit on the older side.
“Home warranties can provide peace of mind that the owner won’t experience a financial emergency in the event of an unexpected appliance of system failure,” indicates Andrew Helling.
“If you have limited income and can’t spare $2,000 to replace your air conditioner if it breaks, or most of your appliances are older, it’s worth exploring the purchase of a home warranty,” he adds.
Of course, the consequences of purchasing a home warranty policy are the arbitrary means through which they can deny you a refund or replacement of your home appliances and systems.
“In my experience, home warranty companies will try to do the bare minimum on projects to save funds, rather than approving all repairs or replacements that are in the best interest of homeowner,” says Ryan Osterkamp.
That being said, you can usually avoid these unscrupulous business practices with the right research. Taking the time to read customer testimonials can ensure that your appliances and systems are protected by a decent company.
“The best way to avoid getting cheated out of your money is by reading online reviews from real customers, and buying from a reputable company,” advises Helling. “You can start by checking Better Business Bureau ratings, and searching Google reviews.”
The Bottom Line
Deciding whether to purchase a home warranty, or to repair each of your appliances one-by-one, is a personal choice, based on the age of your property, the money you have saved up, and your desire for peace of mind.
Weighing all of these factors against the quotes you receive from home warranty companies, can help you decide which decision is best for you and your wallet.