Understanding Home Warranties and What they Cover

One of the very first steps you took after closing on your new home was probably signing on the dotted line of a homeowner’s insurance policy. Although homeowners are not required by law to carry this type of insurance, like they are auto insurance, it is required by almost all of the mortgage lenders in this country. And, honestly, it’s not something you ought to go without. After all, buying a home is one of, if not the most, major purchases you’ll ever make in your life.

While you’re at it, you might as well look into home warranty services as well. What is a home warranty, how does it differ from homeowner’s insurance, and what should you be looking for as you compare companies? Read on for all the details.

What Is a Home Warranty?

Home warranties work in much the same way as insurance plans do. You pay a monthly or annual fee — and sometimes receive a discount for locking in a one- or three-year contract — and in exchange, the company promises to pay for repairs or replacements when something in your home goes on the fritz or bites the dust altogether. It is a type of insurance, although it differs significantly from the type of insurance required by your mortgage company. In fact, it’s sometimes referred to as “home repair insurance.”

What Does a Home Warranty Cover?

Home warranties cover your household appliances (think washer/dryer, refrigerator, oven, dishwashers, etc.) and major household systems such as electrical, plumbing, and HVAC. You can also opt for warranties that cover both appliances and systems, for the most comprehensive coverage. Many companies offer optional add-on coverage for items like a pool or spa, septic systems, sump pumps, whole-house vacuums, and the like. 

So How Does It Work?

Filing a claim with your home warranty provider is usually very easy. You simply call the claims department or fill out an online form. Once your claim is approved, the warranty company will dispatch a service technician in your area. Some companies have a network of pre-vetted techs they rely on, whether the issue is pool repair in Houston, dishwasher maintenance in Boise, or a plumber in Atlanta. Other warranty companies let you choose your own electrician or appliance repair expert.

What Does a Home Warranty Policy Cost?

Costs vary, of course, according to the extent of coverage you choose, where you live, whether you want any add-ons and other factors. However, you can expect to pay between $30 and $60 per month. You’ll also need to pay a service fee when you make a claim. Industry standard for those fees is $75, but warranty customers can sometimes negotiate a lower cost. As mentioned above, you may also be able to save yourself some money by signing up for a year’s worth of service rather than paying month-to-month.

How Is a Warranty Different from a Homeowner’s Insurance Policy?

Insurance covers damage or loss that is caused by an external factor, like a runaway driver crashing through your garage door, a hailstorm damaging your roof or a fire that levels the entire home. Warranties, on the other hand, take care of the repairs or replacements that are necessary when an appliance breaks down or a plumbing problem crops up. 

While some warranty companies will deny claims if the appliance or system is old, has been improperly installed, or hasn’t been maintained properly, some don’t care about that. It’s just like with health insurance — if you have a pre-existing condition or problem in the home, make sure to do your homework and find out what the policies are at all the companies you’re considering. 

Wrapping Up

Like any kind of optional insurance plan, home warranties are something of a gamble. You may pay for coverage for years without ever needing to make a claim, or you could recoup the cost of your policy within the span of several months by not having to pay out-of-pocket for an expensive HVAC repair. But most homeowners find the peace of mind worth the cost.