What Is a Home Warranty?
Buying a home comes with plenty of expenses, and some of the biggest surprises happen after you move in. Your air conditioner stops working, the dishwasher quits, or your water heater suddenly needs replacing. That's where a home warranty may come into play.
A home warranty is a service contract that helps cover the cost of repairing or replacing certain household systems and appliances when they break down from normal use.
It can help with unexpected repair bills, but it doesn't cover everything. Here's how home warranties work, what they typically include, and what to look out for before purchasing one.
What Does a Home Warranty Cover?
Home warranties generally cover specific appliances, home systems, or a combination of both. The exact coverage depends on the company and the plan you choose.
Common appliances covered may include:
Refrigerators.
Dishwashers.
Ovens and ranges.
Built-in microwaves.
Washers and dryers.
Common home systems covered may include:
Heating and air conditioning.
Electrical systems.
Plumbing systems.
Water heaters.
Ductwork.
Some companies offer additional coverage for items such as pools, septic systems, well pumps, or garage door openers.
Read the coverage list carefully. A plan might cover your refrigerator but exclude certain components or cover your air conditioning system while placing limits on how much the company will pay for repairs.
What Doesn't a Home Warranty Cover?
A home warranty isn't a promise to fix anything that goes wrong in your house. Most plans have exclusions, meaning certain problems or expenses aren't covered.
Common exclusions include:
Pre-existing problems: Damage or problems that existed before coverage began may not qualify.
Lack of maintenance: Problems caused by neglect or failure to maintain equipment may be excluded.
Cosmetic damage: Scratches, dents, and other appearance-related issues usually aren't covered.
Structural problems: Roof framing, foundation issues, and other structural damage generally fall outside standard home warranty coverage.
Certain parts or components: A plan may cover an appliance or system but exclude specific parts, accessories, or related expenses.
There may also be limits on how much the company will pay for a repair or replacement.
For example, your plan could cover an air conditioning repair but only pay up to a set
dollar amount.
Always check the exclusions and payment limits before buying a plan. The list of what isn't covered can be just as important as the list of covered items.
How Much Does a Home Warranty Cost?
Home warranty prices vary depending on the company, coverage, location, and size of the home.
Most companies charge an annual or monthly premium for the plan. You may also have to pay a service fee to have someone come out and service the item whenever you request a repair.
For example, imagine your plan costs $600 per year and charges a $100 service fee for each repair request. If your dishwasher breaks, you would pay the service fee, and the warranty company would determine whether the repair is covered.
You may also run into additional costs if:
The repair costs more than the plan's coverage limit.
The replacement appliance or system exceeds the company's allowance.
The problem involves something excluded from your plan.
The repair requires additional work that isn't covered.
Before comparing prices, look at the annual cost, service fees, coverage limits, and exclusions together. A cheaper plan may offer less coverage or leave you responsible for a larger portion of the repair bill.
How Do You Use a Home Warranty?
If something covered by your plan stops working, you'll generally need to contact the warranty company and submit a service request.
The process usually looks something like this:
Submit a claim: Contact the warranty company through its website, app, or phone number.
Pay the service fee: You'll typically pay the required fee when requesting service.
Wait for an assigned technician: The company usually chooses a contractor from its service network.
Have the problem diagnosed: The technician determines what's wrong and reports whether the issue qualifies for coverage.
Wait for approval: The warranty company reviews the request and decides what it will pay for.
If the repair is approved, the company generally pays the contractor according to your contract. If the item needs replacing, the company decides whether replacement is covered and what amount it will contribute.
Keep in mind that you usually can't hire your own repair person and expect the warranty company to reimburse you. Many plans require you to use their approved contractors and receive authorization before work begins.
Home Warranty vs. Homeowners Insurance
These two types of coverage are easy to confuse, but they serve different purposes.
Homeowners insurance helps protect your home and belongings against certain unexpected events, such as fires, storms, theft, and other covered losses.
A home warranty helps pay for certain repairs or replacements when covered appliances or home systems break down from normal use.
Here's a quick comparison:
Homeowners Insurance | Home Warranty |
Covers certain unexpected events and damage | Covers certain appliance and system breakdowns |
May cover fire or storm damage | May cover a broken water heater |
Often required by mortgage lenders | Usually optional |
Has a deductible | Usually has a service fee |
Coverage depends on the insurance policy | Coverage depends on the warranty contract |
You can have both at the same time. One doesn't replace the other.
Should You Buy a Home Warranty?
A home warranty may be worth considering if you want help managing the cost of certain repairs, especially if your home has older appliances or systems.
It may also be appealing if you're buying a home and don't have much money set aside for unexpected repairs. However, a warranty doesn't guarantee that every breakdown will be covered or that the company will pay the full replacement cost.
Before purchasing one, consider:
The age of your appliances and systems: Older equipment may be more likely to need repairs but check whether the company covers older items.
The cost of the plan: Compare the annual premium and service fees with the amount of coverage provided.
The coverage limits: Find out how much the company will pay toward repairs and replacements.
The exclusions: Check for restrictions involving pre-existing problems, maintenance, and specific components.
The repair process: Find out how contractors are selected, how long service requests typically take, and what happens if you disagree with a coverage decision.
You can also ask whether the seller is offering a home warranty as part of the purchase. Sometimes sellers purchase a one-year warranty for the buyer, although the coverage and terms still need to be reviewed.
Too Long, Didn't Read Recap
A home warranty is a service contract that helps cover certain appliance and home system repairs or replacements.
Coverage may include refrigerators, dishwashers, heating and cooling systems, plumbing, and electrical systems.
Pre-existing problems, poor maintenance, cosmetic damage, and certain components may be excluded.
Most plans charge an annual or monthly premium, plus a service fee when you request repairs. Warranty companies often choose the contractors and determine whether a repair or replacement is covered.
Home warranties and homeowners insurance cover different things. You may have both.
Before buying, compare the price, service fees, coverage limits, exclusions, and repair process.
Up Next: Now that we've covered buying a home, let's move on to another major purchase many people make throughout their lives: Buying Your First Car. We'll look at budgeting, financing, insurance, and what to know before signing the paperwork.
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