What is a home warranty?
A home warranty is a renewable annual or biannual service contract that pays for the repair or replacement of covered home systems and appliances when they break due to normal wear and tear or due to approaching the end of their natural lifespan.
A home warranty is not the same as homeowners insurance, although there may be overlap in the systems they cover. Insurance exists to cover the cost of major damage from unexpected events caused by "basic perils," such as fire damage, frozen pipes due to a snowstorm, or burglaries.
Home warranties are for non-catastrophic coverage: when appliances or systems that have been well cared for break for no reason in particular. Since this type of occurrence is common in a home where major items are on the back half of their lifespan, the home warranty's basic premise is appealing to many people.
Who pays for a home warranty?
In most cases, the buyer of a home will pay for the home warranty upon or after closing. The exception is the seller's home warranty, which some people purchase as a measure of protection while selling a home and then transfer to the buyer upon closing.
What in my house is covered by a home warranty?
It depends on the plan, but a typical home warranty plan covers the most-used appliances and/or systems in a house. This generally includes major kitchen appliances, HVAC, and the plumbing and electrical systems. Popular add-ons include washer-dryer, hot water heater, and pool/spa components.
And speaking of components, that word is very important in understanding just how home warranty coverage is determined on a covered item. For example: If your water heater is covered, the home warranty would cover the repair of faulty components of the water heater -- a valve, a tube, a pipe -- but not the cost of repairing any secondary damage to surfaces that were water-damaged by the break. If pipes in the larger plumbing system burst as a result, the possibility of getting that covered depends on what components of the plumbing system are under warranty.
How much does it cost?
The cost of a home warranty varies according to coverage levels and number of covered items. A very basic plan covering only electrical and central heating systems in a home will cost just over $300 annually. A standard "combo" plan covering the main systems and 10 common kitchen appliances costs between $500 and $700. Plans with lower deductibles and add-ons like swimming pool components or washer-dryer can cost more than $1,000 annually.
Is a more expensive plan worth it?
People who have mostly newish appliances sometimes choose a plan that just covers major systems…or major systems and the one appliance that seems potentially at risk. Homeowners who have observed warning signals from several items around the house, or know that several appliances are approaching the ends of lifespans, are usually the ones to opt for the highest level of plan plus higher coverage limits on certain items.
How do you get home warranty coverage?
Shopping for a home warranty online allows you to compare various providers and plans, although you need to take all reviews and recommendations with a grain of salt. As with any industry, people who take the time to post their reviews online tend to be displeased customers. And sites that write glowing reviews about a company are often making money off referring potential customers to those companies. So when you compare online, evaluate the coverage specifics carefully -- don’t base your decision off strangers’ recommendations.
You can also ask a home inspector for recommendations, if you're friendly with one and trust his or her knowledge.
There's also a high likelihood that salespeople for home warranty companies will find their way to your inbox, mailbox, or phone immediately after you buy a house. Don’t take the first offer from someone who manages to get your attention, even if you like what they’re saying. Ask for company and plan specifics, and go to the company’s site to verify everything. Then double-check the company’s credibility with an unbiased expert source like Consumer Reports. Compare the product on offer against a couple of other similar offers from well-known companies. Your process should be the same as shopping for any kind of insurance or high-ticket household item.
How do I use my home warranty?
The theoretical ease of using one's home warranty is a big selling point for a lot of people. When any covered item goes out for an inexplicable reason, you call a repair number or go to your home warranty company's website and make a service request. If the incident/item is covered, the home warranty provider is responsible for sending a qualified service professional out to your home within 2 to 3 business days -- sometimes quicker if it's an emergency. (And unfortunately, sometimes it's slower if it's a busy time or there aren't a lot of service techs in-network.)
Regardless of delays, many people find this process much more streamlined than asking friends and neighbors if they have a good handyman/plumber/electrician to recommend. Waiting around on repairmen is a common frustration in life, no matter who exactly set the appointment.
In the best-case scenario, the problem will be fixed on the first service call. However, sometimes the problem item turns out to have multiple issues that take multiple visits over a couple of weeks. This is pretty standard when dealing with old appliances and specialty contractors, but it really annoys people with home warranties -- especially since they're usually paying a service call fee every visit.
What is the service call fee?
Service call fees are also called deductibles, but that's not exactly an accurate term. If you're looking at this like you would an insurance policy, the service fee is actually like a co-pay. Like paying for every office visit, the service fee is charged any time a service provider has to come to your house to perform a different repair task. If repeat visits are required because they couldn't finish a service the first call, then you may not be billed for the follow-up visit.
A service call fee is usually between $50 and $100, up to $125. The fee can be reduced or eliminated on some plans if you upgrade to a higher coverage level.
What is unlimited service?
Unlimited service means the home warranty company will send out technicians as many times as you call in a year. But even if unlimited service is offered, that doesn't mean endless coverage from your home warranty. Pay attention to the annual payout caps for each covered item in your contract. The home warranty company will still send out technicians if you contact them after those caps have been exceeded, but you'll be responsible for the full cost of the service call.
How does replacement work?
With home warranties that cover replacement as well as repair, items are replaced when the service professional determines they can't be repaired. This can be immediate but is more often decided after repair attempts have been unsuccessful.
How long does it take before I receive money for a new appliance?
You may not receive money for a new appliance. You may just be sent the replacement item -- as close to the original as the company is required to provide under the terms of your contract. And the delivery date may be delayed while the home warranty company determines that the item must be replaced -- and that it is, in fact, their responsibility.
Is there a waiting period for coverage to begin?
If a home warranty is part of a home closing, coverage begins immediately. If you buy it at another time, there's typically a 30-day waiting period. A home inspection may also be required, though this policy varies by company.
Can my home warranty company ever refuse my claim on a covered item?
Yes, there are, unfortunately, several reasons a home warranty company might refuse a claim on a covered item. They could refuse if:
- Their company determines there was a pre-existing condition, and you can't prove otherwise. (This is a good time to dig up that home inspection paperwork if it's on your side.)
- They decide you haven't adequately maintained the item over the years.
- The wear and tear is determined excessive, not ordinary.
- Original work on a system was done without permits and/or in violation of code.
One maddening thing to note about home warranty companies: They want to incur the least possible expense. Therefore, even if a high-ticket item is covered, if the service tech decides they can fix one component and keep it running for a while, they'll do that instead of addressing the larger issue. The fine print of home warranty contracts supports this approach -- and regardless, most people who purchase home warranties are not expert enough in the mechanics of refrigerators and pool pumps to accurately second-guess a repair person.
Do I need a home warranty?
There is one easy way to answer the question. Do you have manufacturers warranties on any or all of your major home appliances? If so, then no, you probably do not need a home warranty.
Apart from that, who knows? Are you ready to rely on good luck this year? Do you have access to a few thousand dollars for emergency repairs if needed? Are you friends with a genius electrician who gives you deals?
Because they have the right answers to those questions -- and because of the same kind of generally icky miasma that hangs over all insurance and warranty providers -- many people decide a home warranty is not for them.
However, looking at the monthly cost of one ($50 to 100 -- so, the same as a nice dinner out) versus the cost of replacing an air conditioner leak (up to $1,500), for many homeowners, a home warranty is a reasonable expense that likely will defray or eliminate larger repair costs throughout the year.