What is a Home Warranty?
Moving and asking yourself, “what is a home warranty?” Home systems and appliance warranties are there to protect the elements of your home that aren’t covered by homeowners insurance. Things like your dishwasher, HVAC system, and water heater are often covered under a home warranty, so you’ll be protected if they break. Want to know more? Here’s what you need to know about home warranties, what they cover, and how they work.
What is a Home Warranty?
A home warranty is a contract between a home warranty company and a homeowner that helps cover the costs of repairing or replacing the major systems and appliances of your home. These components are items such as the furnace, the garbage disposal, and some large appliances. A basic home warranty will not cover components that are part of the home’s structure such as the roof and the flooring. While coverage varies between providers, contracts usually last one year with the option to renew or cancel service once the year is up.
What is the difference between a home warranty and home insurance?
While they might seem similar, home insurance policies and home warranties cover very different things. Home insurance covers necessary repairs to your home if it’s damaged or destroyed by lightning, fire, theft, and other major perils. Home warranties, on the other hand, cover damage to mechanical systems and appliances within your home, such as the HVAC or washing machine, if they break down from regular use.
Additionally, homeowners insurance is usually required by mortgage lenders while home warranties are optional. Since home warranties often cover components of your home that are not covered by insurance, however, it’s worth looking into coverage should something break down unexpectedly.
How does a home warranty work?
When asking yourself, “what is a home warranty?” you’re likely also wondering how it works. Much like your utility services, you can browse and purchase home warranty plans online or over the phone. You can also purchase them in-store, but for many, it’s more convenient to go the online route.
Unless you purchased the plan during a real estate transaction such as buying a house, your home systems and appliance warranty will generally go into effect 30 days after you sign up. If an eligible appliance or system breaks before these 30 days, it would be considered a pre-existing condition. Depending on the details of your home warranty contract, you could be responsible for any repairs, so check with your potential warranty provider if you have any concerns.
Once your home warranty kicks in, if something under your warranty breaks, don’t worry. The steps to filing a claim are similar to those you’d have to take if you didn’t have coverage, with one big advantage. The warranty company already has established relationships with reliable service providers and contractors in your area, taking care of the search process for you.
Plans and companies each have their own style and way of doing business, but the steps to filing a claim are usually quite similar:
The homeowner calls their home warranty company and tells them what’s broken.
The home warranty company calls their trusted provider.
The provider calls the homeowner to schedule an appointment.
The provider sends their contractor to the home to repair the broken component. If it cannot be repaired, depending on the homeowner’s coverage, their home systems and appliance warranty pays for the component to be replaced.
The homeowner pays a trade fee and the home warranty company pays their provider. Trade fees are similar to copays in that they are the amount you have to pay for service. They are a flat fee that cost on average $100 per visit.
Filing this claim is less risky than filing an insurance claim. Unlike home insurance, your monthly premium will not go up if you file a home warranty claim. That said, you’ll want to ensure that your household systems and appliances are covered. So, if you’re buying a home, it’s wise to get an inspection before purchasing your home systems and appliance warranty.
How much does it cost?
When answering the question, “what is a home warranty?” you should also ask, “what coverage do I need?” since that will impact the cost of your plan. There are many different types of coverage, and each warranty company has their own set of plans with various limitations and specific terminology.
Home warranty plans tend to start small, covering standard systems such as water heaters and HVAC systems. In general, the price increases as you expand your plan with additional appliances. Home warranty prices also fluctuate based on the age of the property and the property type, so townhomes, condos, and single family homes are priced differently.
Home warranties have annual premiums along with trade fees (also known as service fees). Home warranty premiums range from $319-$894 per year, and trade fees range from $75-$125 depending on the company and the service. Remember that you must pay these fees to receive service, and you pay them every time a provider sends someone to your home, so they can add up.
Speaking of adding up, it’s a good idea to do some number crunching before purchasing a home appliance warranty. Take stock of the appliances you have and their condition. Then, shop around for the warranty that works with your household’s needs and your budget. Keep in mind that replacing your forced A/C system could cost up to $4,000 while the annual warranty payments are a fraction of the price. Be sure that once you look at the numbers, your home warranty is worth the investment.
What are the benefits of a home warranty?
For those purchasing a home
For new home buyers, a home warranty can provide peace of mind. Since the home’s appliances and systems are all part of the deal, a home warranty provides some financial protection in case these elements of your new home break.
For those selling a home
What is a home warranty worth to a home seller? Well, many buyers feel more secure investing in a home that is covered, so a home warranty can help speed up the selling process. If you’re looking to sell your home quickly, or you simply want to keep the process as streamlined as possible, taking out a home appliance and services warranty could be a great solution for you.
What is covered by a home warranty?
You’ll want to check the specifics of any home warranty plan you’re considering to know exactly what they cover. However, the most basic home appliance warranties tend to only cover some appliances and built-in systems such as your plumbing and electrical networks. These are the most commonly covered appliances and systems:
Ovens and stoves
A basic home warranty covers many items but not everything. Most basic plans will not cover outdoor components, for example. Here’s a list of other items that a basic home warranty is unlikely to cover:
Spas and pools
Window A/C units
Alarm system wiring
In addition to these components, home warranty providers can refuse coverage for certain items depending on their condition when you take out the plan. They may not cover that 20-year-old exhaust fan, for instance, if it’s not in tip-top shape. Be sure that you know exactly what is covered before taking out a policy to ensure that you purchase the best coverage possible for your household.
What if my claim is denied?
As we stated briefly, warranty companies can refuse to cover certain components of your home or can deny your claim entirely. It’s important to stay diligent and review the language of your agreement carefully. What good is a home warranty if it doesn’t cover your items? These are the most common reasons home appliance warranty companies deny claims:
Lack of maintenance - It’s the homeowner’s responsibility to care for their systems, so keep track of your maintenance records.
Improper installation - Components that are not installed properly are not covered, so go ahead and pay the extra cash for a professional’s expertise.
Code violations - If any of your appliances or systems violate safety codes, they will not be covered by your home warranty.
Excluded appliance clause - These are all of the appliances that are not covered by your warranty, so be sure to read your service contract carefully before agreeing to the coverage.
It’s particularly important for new home buyers to be aware of these exclusions when they purchase a home warranty. The buyer becomes responsible for the contents of the home upon closing, and their claim can still be denied if it falls under one of the categories listed above. This means that if the dishwasher wasn’t installed to code or the water heater wasn’t maintained properly, for instance, the new homebuyer’s claim could be denied.
For this reason, it’s important to be diligent when reading over the home inspection. If there’s a pre-existing condition listed on the inspection and you miss it, you may not be covered for the repairs.
If this happens, reach out to your real estate agent and complain. Your agent can then act as your representative when communicating with your home warranty company. Otherwise, you’ll have to find a contractor on your own to replace or repair the component, which can be costly.
If you make the decision to dispute your claim denial, be careful. It can be a long, costly process so weigh your options. Is this dispute worth it financially? If you want to challenge your warranty company’s decision, but don’t want to end up in small claims court, the best thing to do is call their customer service department. Ask to speak with the supervisor and remember to remain assertive but pleasant. You can still be polite as you get your point across.
Finding the right coverage for your home is crucial to protecting your finances if something breaks. With this guide and all of the home warranty plans available, you’re sure to find a plan that fits your needs.