A home warranty is a service plan that protects a homeowner when their major mechanical systems and appliances break down, saving them from high repair costs. Home warranties are available on residential homes for both new construction and existing homes.
What it’s NOT:
Some people might get confused between a home warranty plan and a homeowner's insurance policy, but homeowners insurance is required by your mortgage company and covers your home and personal property in the event of an accident, fire, flood, or major system failure. Homeowners must maintain a homeowner's insurance policy, while a home warranty is optional.
How long does it last?
Home warranty service agreements can vary, but most last for a term of a year or sometimes more. Home warranties can be renewed.
What does it cover?
Home warranties cover normal wear and tear on a home’s systems and appliances.
Most new-home warranties furnished by builders cover the heating, ventilation and air conditioning (HVAC) systems of your home. These warranties also cover windows, plumbing, and electrical systems for workmanship and materials, but not the total replacement. Siding, drywall, paint, trim and stucco are also usually included.
However, one distinction to remember is that these MUST be in good working order when you sign the agreement with the warranty company, or else they are not eligible for repair. Most plans are customizable, so make sure to review your agreement before you sign it and ask plenty of questions to ensure that you're adequately covered.
What is NOT covered:
Consumers should be aware that standard home warranties don’t cover new home appliances. Unlike homeowners insurance, home warranties won’t cover the cost of staying in a hotel if you can’t stay in your residence (for instance, if a heater goes out in winter, your water heater causes a flood, etc.). Small breaks and defects like cracked tile, a scratched appliance, etc. are not covered, either.
The cost of a home warranty:
Home warranty policies range greatly based on the company, the level of coverage, the deductible, and the term. Most home warranty plans fall between $250 and $600 annually.
You’ll pay a deductible when you make a claim.
Any time you file a claim with your home warranty company, you’ll be required to pay a deductible, ranging from $50 to $100 per incident.
Different levels of coverage:
There is no one universal home warranty policy, so you’ll want to pick the level of coverage that best fits your needs. Basic coverage usually covers your furnace, A/C, and major appliances, while upgraded plans cover far more appliances and systems, albeit at a greater cost.
How does it work?
When an appliance or system in your home malfunctions due to normal wear and tear, the homeowner will call their warranty company and register a claim. The warranty company will then arrange for a contractor or repairman to come out to diagnose the problem and make the needed repairs or replace them all together.
Do age and condition matter?
As long as your systems and appliances were in good working order at the time you entered into the home warranty agreement, it won’t matter how old they are.
Home warranties also can help home sellers?
Home sellers can also purchase a home warranty plan and include it in the sale, transferring it to the new buyer. Studies show that homes that include a warranty sell 16% faster than homes that do not, with an average of 66.5 days on the market compared to 55.5, respectively. Homes for sale that offer a home warranty also sell for an average of $2,500 more than those without one!
Who does the repair work?
In the event of a problem, your home warranty company will ask you to submit a claim, at which time they will supply their own approved contractor to do the work. These contractors are often on their list due to pre-arranged discounts, so make sure to ask questions and get in writing that the quality of work, schedule, materials used, etc. won't be compromised.
The most common home warranty repairs:
28% Pool, pest, roof, etc.
26% HVAC (heating and air system)
7% Rekey locks
Customer satisfaction with home warranties isn’t a strong point.
Unfortunately, many consumers are caught unaware when things break in their home, but they aren't covered in their home warranty. Common customer gripes include the abundance of documentation the warranty company requires, the amount of reimbursement, and the fact that some items aren't included, and some claims denied.
It's always best to thoroughly review all agreements and ask plenty of questions before you pay for a home warranty, as well as keeping all receipts, documentation, and paperwork in case of an issue or dispute.
Should you get a home warranty?
Research shows that if your home new construction and homes less than ten years old, the chance of your appliances or systems failing is extremely small, rendering a home warranty an unneeded expense. However, for homes that are older than ten years and especially those with older big-ticket systems like HVAC, home warranties offer great assurance and save homeowners a lot of money.