Home Warranties: A Comprehensive Guide
A home warranty is essentially an annual service contract that covers the repair or replacement of major home systems and appliances. Homeowners pay an annual fee, which can range from a few hundred to over a thousand dollars, depending on the plan. There’s also a service fee required each time a technician comes to evaluate an issue.
While a home warranty can offer some peace of mind, particularly during the homebuying process, it is not a substitute for a thorough home inspection. It’s crucial to read the fine print of any home warranty policy before signing up in order to understand exactly what is covered and how the plan operates.
How a Home Warranty Works
Here’s a simplified breakdown of the typical process when a covered item breaks:
- Submit a Claim: You contact your home warranty provider and submit a claim detailing the problem.
- Schedule a Technician: The company coordinates a technician appointment with a third-party repair service. The wait time varies depending on the company and the technician’s availability.
- Diagnosis: A technician visits your home to diagnose the issue, determining if a repair or replacement is necessary.
- Report and Claim Review: The repair technician submits a report to the home warranty company.
- Approval or Denial: Your home warranty provider reviews the report and approves or denies the claim. If approved, the company pays for the repair. If the issue isn’t covered, you are responsible for the repair costs.
Important Note: You are usually responsible for paying the service fee for the technician’s visit, even if the claim is denied.
Home Warranty vs. Homeowners Insurance
It’s important to differentiate between a home warranty and homeowners insurance. A “home warranty” isn’t actually a warranty; it’s a service contract. Similarly, homeowner warranties differ from insurance. Homeowners insurance typically covers structural damage to your home resulting from major events like storms or fires. A home warranty, on the other hand, generally covers the repair or replacement of appliances and systems due to normal wear and tear.
What Home Warranties Typically Cover
Home warranties primarily cover repairs or replacements for appliances and systems that break down due to everyday use.
- System Plans: These plans often cover major home systems like heating, cooling, electrical, and plumbing.
- Appliance Plans: These cover major appliances such as dishwashers, ovens, and washing machines.
- Combination Plans: These plans combine coverage for both systems and appliances. Some companies offer tiered plans with varying levels of coverage and therefore price.
Some items might not be covered by certain home warranty companies, such as in-ground sprinklers, swimming pools, and septic systems. Additional coverage might be required for these items.
🤓 Nerdy Tip: Companies often deny claims for appliance or system failures that existed before the home warranty contract began. If an issue arises during a home inspection or after the seller has disclosed an existing problem, your warranty likely won’t cover it. Consider negotiating with the seller either to fix the issue or provide a credit to fix it yourself.
What Isn’t Covered by a Home Warranty
Home warranties typically exclude coverage for:
- Issues caused by human error, improper maintenance, or natural disasters, like earthquakes, floods, or tornadoes
- Regular maintenance, although some companies offer coverage for specific maintenance tasks such as HVAC tune-ups
- Pre-existing conditions or failures caused by incorrect installation or modification
- Certain situations or parts
How Home Warranty Costs Are Calculated
Here’s a breakdown of the typical costs associated with home warranties:
- Monthly Fee: This can range from about $20 to $120 per month, depending on the provider, coverage, and property location. Based on NerdWallet’s analysis, a typical monthly fee is around $58.
- Service Fee: A service fee is charged for each service call, regardless of whether the claim is approved. Fees can range from $70 to $125 or more per claim. You could pay several hundred extra dollars during your service agreement in service fees alone if you file multiple claims. Keep coverage limits in mind as well, since you will be paying for repairs that go over those limits.
Key Factors When Choosing a Home Warranty
When comparing home warranty plans, consider these key factors:
- Expected Repairs: Review the service agreements to confirm that the appliances or systems you are most likely to need to repair are covered and understand potential exclusions.
- Coverage Limits: Check for coverage limits, and compare those limits to different types of repairs for covered items. Determine if the limits are adequate.
- Coverage Exclusions: Carefully review the service agreement, specifically the sections labeled “Exclusions” or “Limits of Liability.”
- Waiting Period: Most home warranty companies require you to wait approximately 30 days after purchasing coverage before you can submit a claim.
- Customer Satisfaction: Check reviews on sites like the Better Business Bureau, Yelp, and Consumer Affairs to assess customer satisfaction, or search for any warnings issued by state officials.
Alternatives to a Home Warranty
If you’re not sure a home warranty is the right choice, here are some alternatives:
- Savings Account: Set aside money in a dedicated savings account for home repairs and maintenance. This ensures funds are available for any necessary work.
- Manufacturer Warranties: Register your systems and appliances for manufacturer warranties if they’re still within the timeframe for coverage. This keeps your items protected for longer.
- Extended Product Warranties: Leverage extended product warranties, to receive continued coverage after a manufacturer warranty expires.
- Credit Card Coverage: See if a credit card used for the original purchase extends coverage. American Express Platinum, for example, can provide up to $10,000 in coverage for losses up to a year after the original warranty expired.
