What is a Home Warranty?
It’s common to wonder what a home warranty covers when you already have home insurance. Home warranty solutions work hand-in-hand with your home insurance – back you up and ease emergency financial outlay in certain situations.
Home warranties cover you when one of your critical home systems or appliances fails due to age or wear and tear. Conversely, home insurance protects your home and property in case of damage from criminal activity, like vandalism, or weather events like hurricanes or blizzards.
A warranty may sound like something only available for a new home, but home warranties are available for both new and used homes. If you’re wondering what a home protection plan is, it’s the same as a home warranty. What your home warranty (and home insurance) policy covers depends on your individual plan. There’s more on what you can expect from your home warranty below.
Home warranty plans
Let’s define a house warranty first. A home warranty is a service agreement signed with a warranty provider to pay for the service and repair of all the specified appliances and home systems, including electrical, plumbing, and HVAC.
To retain a home insurance policy, you pay an annual premium. When a service call is required, you’ll pay a small service fee, usually around $125. Think of this as an insurance deductible or a copay for medical services. The great thing is that payment is the same amount whether you need a small repair or need to have an appliance or system fully replaced.
Here are a few examples of things that home warranties CAN cover:
Repair of major appliances like your washer and dryer, dishwasher, or refrigerator
Replacement of appliances that can’t be repaired
Repair or replacement of pool systems
Repair or replacement of your oven, range, or cooktop
Note that each policy is different, so read through your options thoroughly to ensure you have the right coverage.
Below are things NOT typically covered by home warranty policies:
Damage to your home from a weather event like a hurricane, tornado, or flooding
Broken appliances or home systems that a person damaged (whether accidental or on purpose)
Damage from criminal activities such as burglary or vandalism
There are some exceptions and places in which your home insurance and home warranty can complement each other. For example, come home from vacation to find that your dishwasher broke and caused a flood. Home insurance is likely to cover the cost of repairing the water damage, but it won’t replace your dishwasher. However, if your home warranty policy covers your dishwasher, you could be covered for the cost of repairing or replacing your broken dishwasher.
In most cases, a home warranty either complements home insurance or fulfills a separate purpose, so it’s a great idea to have both.
How a home warranty works
Let’s talk about how a home warranty works. Think of a home warranty as a savings plan you use when your home appliances or systems wear out. If you’re a diligent saver and confident that you can keep adding to an emergency repair fund consistently on your own – without giving in to the temptation to dip into it – you might not need a home warranty.
For most of us, keeping enough in savings to cover the replacement of an entire HVAC system or multiple appliances presents too great a temptation to resist. This is where a home warranty comes in — you pay a yearly premium, and anything covered under your warranty is repaired or replaced for the cost of a service call.
For example, if you’ve only been paying your home warranty premium for a year and have contributed $600, and you need to have major electrical work done that would normally cost you $2,000 or more, your home warranty covers that work as long as that particular system is covered under your policy.
Another name for a home warranty is a home service contract. In some ways, this is a more descriptive name since your policy often covers repair services before a full replacement. Home warranty solutions vary by provider, so keep reading for more details on coverage options.
Home warranty coverage
What a home warranty covers depends heavily on your particular policy. Home warranties are 100% optional, making them highly customizable. Unlike mandatory home insurance, which requires a certain level of coverage, you can tailor a home warranty policy to suit your needs.
Home warranty plans can be categorized into three main types.
Appliance plans
Replacing appliances can get pricey quickly. While older appliances were made to last, modern appliances have an expected lifespan of 10 to 15 years.
If you’re buying a home that’s five years or older that included new appliances when it was built, you can expect to have to replace those appliances within the next five to 10 years. While that might sound like a reasonable amount of time, life goes by fast. Some home warranty plans only cover appliances, which can be a lifesaver.
Realizing that five or eight years have gone by and you are now looking at having to replace an oven, refrigerator, washer, dryer, or dishwasher can be a daunting thought. If more than one appliance breaks at the same time, it could mean the choice between taking that much-needed winter vacation or the necessary task of replacing appliances.
That’s not a position any of us want to find ourselves in, which is why a home warranty is a smart idea. In the above example, if you have a home warranty, that cost suddenly drops from several thousand dollars to the service call fee, and your tropical vacation is back on the table.
Systems plans
Similar to appliance plans, systems plans are specific to your essential home systems. The main systems a home warranty covers are plumbing, electrical, heating, ductwork, and hot water heater. The cost to repair or replace them can be shocking. Home warranties that cover your home’s systems take some of that concern away.
Ideally, when you purchase a home that’s new or used, your home inspector will be able to spot any potential issues with your home systems and give you a heads-up to negotiate the cost or repairs. However, the powers of a home inspector only go so far, and there’s always the potential for an unforeseeable malfunction or breakdown.
Home insurance doesn’t cover wear and tear or the repair or replacement of older systems. If you are in that situation and don’t have a systems home warranty, that cost will fall solely on you.
There are a few things to note when choosing your home warranty policy. While it’s wise to shop around for the lowest quote, less expensive isn’t always better in this case. Here’s why:
Most home warranty policies have coverage caps. A lower premium may mean that your coverage cap is lower. For example, if you pay a low premium, your appliance coverage cap might be $1,500. If you have to fully replace a high-end appliance that costs more than $1,500, you’re responsible for covering the balance.
You’re locked into a service network. Similar to an HMO, your service calls can only be completed by approved providers. This can mean that if the repair companies in your area are limited or booked up, you may have a longer wait.
Response time matters. With most home service contract companies, you’ll need to contact them for approval before you make a service call. A great customer service department makes all the difference in this case, and online customer reviews are your best friend to get the inside scoop.
As you’re learning what a home warranty is, it’s important to keep these possibilities in mind. In the best-case scenario, you’ll proactively maintain and replace your home systems before anything wears out. If not, it’s great for your peace of mind to know you’re covered.
Combination plans
Combination plans include both appliance and systems coverage. The specifics of what’s covered still depend on your agreement, but if you’re looking for a more comprehensive policy, a combo plan could be the perfect thing.
How much is a home warranty?
The premium you pay for your home warranty policy largely depends on the age of your home and appliances and what you want to be covered. On average, expect a home warranty policy to cost between $300 and $600 per year. This works out to anywhere from $25 to $50 per month. When you’re a new homeowner, any extra expense might seem unnecessary, but with a few small adjustments to your budget, you can offset the cost of a home warranty.
The monthly cost for a home warranty policy is minimal when you compare it to a hefty repair bill for a water heater or refrigerator – or worse, having to pay out of pocket for a new one. While getting a shiny new appliance is fun, the dent in your bank account can take some shine off that novelty. With a home warranty, you get the best of both worlds. Either your repair is done quickly and easily, or you get a new system or appliance for the same cost.
Certain things are considered add-ons to a standard home warranty policy and might bump up your premium. For example, if you have a pool and want your pool system covered, you can expect to pay more. The added cost varies based on the size of your pool, the type of pool heater, and more.
Most of us, at some point, will need to replace or repair a dishwasher, dryer, oven, HVAC, or plumbing. If you’re not perfectly positioned for those costs, it can make things very stressful. If you have a home warranty, that stress is instantly lowered. It’s worth planning into your yearly budget, whether you’re buying a new or older home.
If you are a homeowner or are planning to buy a home, consider adding a home warranty to your to-do list. It’s a financial safety net that can shield you from unforeseen expenses related to your home’s systems and components.