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Whether you’re buying a home or already own one, a large repair expense might devastate your finances for months. A home warranty, on the other hand, may cover these expenses. Although purchasing home warranties can be a great investment, they are not cheap and do not cover everything in your home.
Here’s everything you need to know about home warranties, including whether or not they’re worth it.
What Is a Home Warranty?
A home warranty is a service contract that covers the appliances and systems in your home (plumbing, electrical, HVAC, etc.). In exchange for a monthly or annual payment, a home warranty will repair or replace appliances and systems malfunctioning or have failed due to regular wear and use. Home warranty protection plans are meant to cover your property for a specified length of time and may include optional coverage for items such as pools and hot tubs.
While this may sound like a homeowners insurance policy, it is not. Home insurance covers only damage to the structure of your home, theft of personal belongings, and injuries sustained on your property. A house warranty covers the cost of replacing or repairing interior appliances and systems that fail to function properly due to normal wear and tear or manufacturing faults.
How Do Home Warranties Work?
While the two products are fundamentally different, house warranties function in the same way that insurance does. Before coverage begins, you must pay a monthly premium, register a claim, and pay a deductible (also known as a service call cost for a home warranty).
Homeowners sign a service contract with a home warranty business for the level of coverage they want, often for one year, and then follow the process outlined below to have a covered appliance or system fixed or replaced when it fails due to regular use.
- File a claim: Most businesses allow you to file a claim online or over the phone at any time.
- Pay a service cost: The home warranty company charges a service call fee — normally between $60 and $125 each visit — to send a licensed contractor to your home to diagnose the problem.
- Make an appointment with a contractor: The designated technician arrives at your house to inspect the broken equipment or system.
- Replacing or repairing the item: The technician will check with the home warranty company to see if the breakdown is covered. If the claim is authorized, the technician repairs or replaces the system or appliance.
- There is no additional cost: The cost of the repair or replacement is covered by the home warranty company (as long as it does not exceed the maximum coverage limit).
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What Does a Home Warranty Cover?
Different home warranty businesses provide a variety of programs and levels of coverage. What strategy you should choose is determined by your home and personal demands. However, in most circumstances, three types of house warranties are available:
- System plans: This plan will only cover particular systems in your home. For example, your air conditioner or furnace will be covered if you obtain HVAC coverage, but not smaller machines like your space heater.
- Appliance plans: This policy will cover appliances but not larger systems. This category includes refrigerators, ranges, built-in microwaves, and garage door openers.
- Combination plans: As you might expect, this warranty will cover malfunctions of home systems and appliances, depending on the insurance and your service provider.
You can also pay for warranty extensions. This additional coverage is especially beneficial if your property includes a pool, hot tub, well pump, or other forms of home system.
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What Is Not Covered by a Home Warranty?
While a home warranty plan may assist pay for the repair or replacement of a certain system or appliance, it does not always cover everything that can go wrong with that item. Every provider’s contract includes coverage limitations and restrictions.
For example, while your plan’s contract may cover plumbing leaks, obstructions caused by roots outside of the home’s structure may be excluded.
Also, remember that an appliance repair or replacement (for example, your stove or toilet) does not always guarantee components or equipment of the same brand, color, or size. While your appliances may be repaired, you may wind up with a mismatched kitchen or bathroom.
Here are some things that house warranties often do not cover (please keep in mind that coverage varies based on the provider, so check your contract for specifics):
- Unless you’ve specifically included them in your coverage, areas outside the main part of the house, such as underground pipes or sewer lines, are not covered (like a pool or septic tank).
- Homes greater than 5,000 square feet (you will almost certainly have to pay more for this coverage).
- Pre-existing ailments or difficulties detected before purchasing the warranty. This can include any flaws discovered during a house inspection or mentioned in the seller’s disclosure.
- Sprinkler systems and outdoor plumbing fixtures like faucets
- Repair structural components of a new or remodeled home, such as walls, floors, and plumbing (covered by a builder warranty).
- Inadequately maintained, repaired, modified, or installed systems and appliances.
- Items that have been recalled and any systems or appliances covered by another warranty (like from a manufacturer).
- Properties utilized for commercial purposes, such as a bed-and-breakfast or daycare.
- Coverage for more than one of the same equipment or system — for example, you’d have to pay more to cover an additional refrigerator or dishwasher.
- Cosmetic damage, such as dents or scrapes, and insect damage, like termites.
How Much Does a Home Warranty Cost?
In general, a house warranty can cost between $300 and $600 each year. This means that the monthly charges will range between $25 and $50. Home warranty businesses provide several plans with varied premiums based on coverage. Of course, your final figures will be affected by various circumstances, notably whether you elect to include optional add-ons.
Keep in mind that if you make a claim, you will be required to pay the service call cost associated with the repair, as well as a deductible that typically ranges between $60 and $125.
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Are Home Warranties Worth It?
A home warranty can provide peace of mind by covering unexpected expenses linked to system and appliance faults as well as typical wear and tear. However, if your key appliances and home systems are brand new and protected by manufacturer’s warranties, you probably don’t need to purchase a home warranty plan just yet.
Is a Home Warranty Required for Homeowners?
No, homeowners don’t need to purchase a home warranty. Home warranties are an optional purchase that can save homeowners hundreds of dollars on critical household appliances and systems maintenance and replacement expenses.
When Does a Home Warranty Make Financial Sense?
If the peace of mind it provides overcomes the cost of the contract, a home warranty may be a sensible alternative. Suppose you live in an older house with original HVAC equipment and appliances.
In that case, a home warranty may be a good choice, as long as there are no capacity or installation issues that would prevent your system from being covered. A warranty helps alleviate a buyer’s fears about potential house repairs in the event of a home sale.
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When Using a Home Warranty May Not Make Sense?
A home warranty may not be necessary if any of the following conditions exist:
- You recently acquired a new construction home, and you have modern appliances that are still covered by the manufacturer’s warranty.
- You’d rather choose and work with your contractors than the ones provided by the warranty provider.
If you decide not to purchase a house warranty, consider creating a home-repair fund to cover unforeseen expenses. This will save you from squandering money on a warranty that isn’t required if repairs aren’t required.
Home Warranty vs. Homeowners Insurance
While house warranty and homeowners’ insurance policies share some characteristics, they are fundamentally different products. The primary distinction is in the scope of each. A thorough comparison may be seen below.
| Home Warranties | Home Insurance |
|---|---|
| Covers repair or replacement of appliances and home systems due to malfunction or breakdown. | Covers the home’s structure and contents from damage due to accidents and natural disasters. It also covers theft of personal property, and offers liability protection. |
| Not required with a mortgage, but sometimes included by home sellers as part of a real estate transaction. | Required of home buyers by mortgage lenders. |
| A home warranty can be transferred to a new owner. | Home insurance cannot be passed on to a new owner. |
Coverage Limits on Home Warranties
Providers of home warranties do not pay more than the amounts specified in your service contract. A home warranty provider may specify these limits on an item-by-item or term-by-term basis. Typically, these restrictions range between $1,500 and $3,000, depending on the supplier. Expect to find terms like the following in your contract:
“[Provider] will pay up to $1,500 for access, diagnosis, and repair or replacement of [item] within the contract duration.”
If the cost of a repair or replacement exceeds the policy’s coverage limit, the warranty company may offer you a cash settlement instead. In this instance, you will get payments up to the amount of your coverage, but you will be responsible for the difference in the cost of repairing or replacing the item. Additionally, you may be required to provide your warranty provider documentation proving you used the cash compensation to complete the repair or replacement.
Frequently Asked Questions
Does a Home Warranty Cover Plumbing?
Yes, the majority of house warranty companies cover plumbing systems and stoppages. This could include line leaks and breaks, toilet flushing mechanisms, water softener pipes, drain, vent, and sewer line stoppages.
Does a Home Warranty Cover HVAC?
Yes, most big home warranty plans cover air conditioners and heaters. Consult the fine print of your contract to determine which components are covered and the contract’s maximum coverage level. Bear in mind that you are responsible for any costs in excess of this amount. If your home is susceptible to air conditioning problems, it’s worth shopping around for a carrier with a generous coverage limit.
Who Pays for the Home Warranty, the Buyer or the Seller?
Sellers may choose to pay for a home warranty plan to improve the attractiveness of their offer and safeguard their budget while the house is on the market. Before closing a sale, homebuyers can also purchase one through their real estate agent or a home warranty provider. Finally, it is determined by how the local real estate market typically handles it.
Does a Home Warranty Cover Electrical Problems?
A home warranty will, in most situations, cover the electrical components of your home’s electrical system, major appliances, and other important or built-in systems.
Does a Home Warranty Cover Roofing Problems?
Several home warranty providers cover roof leaks. It could be a regular feature or an optional extra. Roof damage might necessitate pricey repairs, so it’s worth considering additional roof coverage to your policy if it doesn’t come standard.
How Soon Can You Use a Home Warranty After Purchase?
In most circumstances, your contract will become effective 31 days after the purchase date. If a system or appliance in your home falls within the 30-day waiting period, you may be unable to seek service or may be covered for only a portion of the repair. If you purchase a home warranty in conjunction with a real estate transaction, your coverage should begin on the day of closing.
Does a Home Warranty Cover Solar Panels?
Standard home warranties do not cover solar panels and solar energy systems because they are affixed to the home and considered a component of its structure. On the other hand, solar panel companies typically provide extended warranties, and most home insurance policies include solar panels.
Does a Home Warranty Cover Fireplaces?
Most home warranty providers exclude fireplace repair and replacement from their coverage. As a result, any fireplace repair costs are not covered by house warranties and must be borne by you. Your gas line is the one thing that your house warranty may cover. If a gas leak affects your fireplace, your warranty plan may cover the leak.
Bottom Line: What Is a Home Warranty?
A home warranty can safeguard your finances while providing you with peace of mind. Regardless, you’ll need to evaluate your needs and budget to see worthwhile coverage. If you’re not sure which appliances and systems are covered, notice some damage in your house, are on a tight budget, or are new to homeownership, a home warranty is probably worth it.
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