A home warranty is a service contract that protects your home’s appliances and systems (plumbing, electrical, HVAC, etc). For a monthly or annual premium, a home warranty will repair or replace appliances and systems that are malfunctioning or have broken down due to normal wear and tear. Home warranty protection plans are designed to cover your property for a fixed period, and may also include add-on coverage for things like pools and hot tubs if you pay extra.
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How do home warranties work?
Home warranties have coverage limits (which we’ll go into below). The items covered also vary by company and plan. For example, one company may cover your central AC while another won’t. Similarly, a company may offer a plan that only covers a second refrigerator if purchased as an add-on. Home warranty companies also have coverage limits and exclusions outlined in their contracts. Because of this, some claims might be denied. It is important to know all these details before you decide on a company and plan.
How long do home warranties last?
For the most part, home warranty service contracts are sold for one-year terms. Usually, homeowners are allowed to renew their home warranty contract year after year, thereby ensuring their property remains protected.
Differences between home warranties and homeowners insurance
While home warranty coverage and homeowners insurance policies have some things in common, they are essentially two different products. The main differences lie in what they cover. Below you will find a detailed comparison.
|Home Warranties||Homeowners 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.|
What does a home warranty cover?
Home warranty plans are typically categorized into two broad areas: systems and appliances. The specifics depend on your agreement with the company, but most companies have separate plans for each, and often a premium plan that includes both.
Generally speaking, the technician sent by the home warranty company will first try and repair the malfunctioning appliance or system. If that’s not possible, a replacement will be procured.
The following are items usually covered by the best home warranties. Remember to always read the fine print and know the details regarding your coverage and covered items.
- Heating system
- Air conditioning systems (HVAC systems)
- Electrical system
- Plumbing system
- Water heaters
Covered home appliances
- Garbage disposals
- Ceiling fans
- Bathroom exhaust fans
- Clothes washers and dryers
- Garage door openers
- Ovens / stoves / cooktops
- Refrigerators / freezers
- Ice makers
- Trash compactors
- Instant hot water dispensers
- Swimming pools
- Septic pumps
What isn’t covered by a home warranty?
Most home warranty providers won’t have plans that cover things like additional air conditioners, water heaters and refrigerators. Structural elements like windows, walls, floors and foundations are usually out as well.
Companies often add new coverage plans, or sometimes even alter existing plans to add or remove items. Regardless, here is a list of things not typically covered:
- Cosmetic damage
- Light fixtures
- Outdoor water systems
- Booster pump
- Remote controls
- Disposing of debris
- Appliance accessories
It is important to note here that just because a system or appliance is listed under your plan doesn’t mean it will always be covered. Home warranty companies have a reputation for denying claims and finding all kinds of reasons not to cover items.
As boring as it sounds, it is imperative homeowners go through the contract agreement before purchasing a plan to see what major systems and appliances are included, and also to see potential reasons said items would not be covered. The home warranty should have a sample contract agreement online. If they don’t, forget that company.
Coverage limits on home warranties
All home warranty companies have caps that will determine how much the provider will pay to cover your claims. Depending on your particular plan and coverage options, these limits can be imposed on an item-by-item basis and range anywhere from $500 to upwards of $3,000 or more. So if your contract says the maximum dollar amount on refrigerator coverage is $2,000, that’s the most they will pay to repair or replace, as long as you are meeting your monthly premium and pay the service fee.
Oftentimes limits are imposed on certain home repairs themselves such as roof leaks, septic systems, and well pumps.
Some companies also have aggregate limits: an annual cap on the amount they will pay out for any and all claims. If claims exceed these limits, you will have to pay out of pocket. This can affect your budget and your household, should you decide you can’t meet this obligation.
As such, we would encourage you to sign up with a home warranty provider with coverage limits you are comfortable with. It’s the best way to manage expectations and protect your finances.
What are the costs of a home warranty?
Broadly speaking, a home warranty can cost anywhere between $300 and $600 a year. This puts the monthly costs between $25 and $50. Home warranty companies offer different plans with varying premiums, depending on the amount of coverage that’s included. Of course, your final numbers will depend on various factors, particularly on whether you decide to include optional add-ons.
Keep in mind that should you file a claim, you’ll have to pay the service call fee associated with the repair, a deductible that usually falls between $60 and $125.