What Is A Home Warranty And Do You Need It?

Owning a home is a lifelong goal for many people. After years of saving for a downpayment, searching for the perfect property, navigating the mortgage process, and moving in, you can finally sit back and relax! Or can you?

What happens if something breaks down? How are you going to find a reputable company to make repairs, and (more importantly) where are you going to find the money to pay for it?

A home warranty might just provide the peace-of-mind and protection you need to safeguard your budget from unexpected expenses.

Home Warranty Defined

Typically purchased for older, existing homes, a home warranty is used to cover the cost of repairs for household systems and/or appliances. When you contract with a home warranty company, your fees will provide you with a replacement or discounted repair service for your home’s major components.

Home Warranty Coverage

Home Warranty coverage varies by company and agreement type. Whole-home service plans often provide full-repair or replacement in case of breakdown for most home systems and appliances such as:

Electrical

  • Wiring
  • Lighting
  • Circuit breaker
  • Ceiling fans
  • Door bell
  • Garage door opener

Kitchen Appliances

  • Refrigerator
  • Stove/Oven
  • Dishwasher
  • Exhaust fan
  • Built-in microwaves
  • Garbage Disposal

Heating and Cooling

  • Central air conditioning
  • Furnace/boiler
  • Heat pump system
  • Ductwork

Plumbing

  • Plumbing system/pipes
  • Plumbing blockage 
  • Water heater

Laundry Appliances

  • Washer
  • Dryer

Home Warranty Exclusions

Home warranty agreements don’t usually cover exterior components like the roof, siding, windows, doors, in-ground pools, spas, or overhead garage doors. A home warranty differs from a structural warranty which is usually provided for new construction used by home builders. Loss of use from fire, flood, or natural disaster will also be excluded.

If you are able to purchase additional coverage for roof repairs it would only receive coverage on a leak, not an entirely new roof. Similarly, plumbing issues will cover clogs and leaks but not water damage caused by the problem.

Electrical coverage may exclude wiring for computers, security systems, cable TV, or circuit overload. Solar panels are considered structural and are not covered by a home warranty.

Finishes like paint and wallpaper are excluded, as are pre-existing conditions. This means that coverage will be denied for any component that was not working before the home warranty took effect.

The Process

The steps for filing a claim when an appliance or home system breaks down can vary between companies. In most cases, you will contact the home warranty provider first through an app, online process, or phone call. Some companies work with specialty contractors while others have their own service technicians ready to do an on-site evaluation. In either case, a report will be sent back to the warrantor to determine the proper course of action: repair or replacement.

The Cost

While a home warranty can provide peace-of-mind that you’re covered for unexpected product breakdowns, it doesn’t mean that you’ll never have to spend anything else on home repairs.

  • An additional deductible/service call fee may be required ranging from $55 to $150 per home visit. Most policies will charge a lower fee if the cost of the repair is less than the service call fee.
  • Some plans require the purchase of additional coverage for specific components such as a sump pump, septic tank, or well pump. A second appliance (like another refrigerator) may require an extra fee. Most plans only cover a primary appliance.
  • Denied claims for improperly maintained equipment may mean that you’re responsible for both the repair costs and the service fee.
  • Reimbursement rates for housing systems and appliances may be less than full value. This would require an outlay of cash to either cover the difference or purchase a new component.

The Difference Between A Home Warranty and Home Insurance

There are some similarities between a home warranty and home insurance policies with terminology like deductibles, claims, and liabilities. However, they offer unique services. Home warranties deal with breakage and wear for household systems and appliances. Insurance policies go into effect when there is a loss due to fire or natural disasters.

Who Qualifies

Before a home warranty is finalized, it is important for you to understand as much about the state of your systems and appliances as possible. If anything is damaged, poorly maintained or misused, or improperly installed, your home warranty provider can deny a claim.

There are many different plans and levels of coverage offered. Qualifying components depend on your specific needs, age of home, condition, and maintenance. Purchasing a home warranty should match your situation and not duplicate or overlap other coverage.

Buyer Beware

Like every contract you sign, it’s important to understand the type of coverage you’re purchasing. A home warranty can be excellent protection from unforeseen expenses, but you want to consider these points before committing to a plan:

Plan Costs

Annual costs for this protection can add up and if you never make a claim, you may feel like you wasted your money.

Delayed Coverage

A 30-day waiting period is usually required before your plan is effective. You won’t be able to back date a claim if a component breaks down before your plan takes effect.

Restrictions

No plan offers complete wall-to-wall coverage, so it’s possible you may have to pay for some of the damaged or broken items yourself.

Dollar Limits

Many plans set dollar limits on how much they’ll spend to repair or replace your equipment. If you have high-end appliances, you may not receive a comparable replacement when it can’t be repaired.

Due Diligence

Before you purchase a home warranty, you should take a little time to research different companies and the plans that are offered. Read customer reviews, check the Better Business Bureau ratings, and compare plans to find the best fit for your situation.

Advantages And Disadvantages

Weighing the advantages and disadvantages of purchasing a home warranty is critical to getting the most benefit out of your plan. Let’s review the pros and cons of buying a warranty:

Pros

  • Safeguards against unplanned repair expenses. There’s never a good time for an appliance or home system to break down, but a warranty can help get your home back to normal without the stress of finding the money to pay for it.
  • Time-saving, expert repairs. The warranty company will start to work as soon as your claim is processed. They’ll bring in expert technicians to address your problem.
  • Selling feature. When you’re ready to sell your home, keeping your appliances and home systems well maintained will be a great selling point for prospective buyers. In addition, some companies allow the transfer of the policy to a new owner

Cons

  • Claim denial. The warranty company has full discretion for whether or not they will honor a claim. There may be instances where your broken equipment was not properly maintained (either from a previous owner or your unfamiliarity with what was needed) and the company will not pay out.
  • Repeated Repairs. While your appliances or system may have multiple failures causing extreme inconvenience, the warranty company may refuse to replace as long as repair is possible.
  • Insufficient coverage. Not every plan covers every component in your home. High priced items like an old HVAC system may not be covered by the plan you selected. Make sure to read and understand what you’re paying for.

Alternative Programs

Structured home warranty programs are nice to have, but you may be able to handle things on your own without the added expense. You may want to consider these alternatives:

  • Save for an emergency. It’s recommended that homeowners put aside an emergency fund to cover three to six months of expenses. Add extra money to cover home repairs.
  • Check for other warranties. Newer appliances and systems all had original manufacturer’s warranties. Check your paperwork to see if some are still in effect.
  • Keep up your maintenance. Preventive maintenance on all your equipment will help guard against major breakdowns and extend the lifespan of your appliances and systems.

Is A Home Warranty Worth The Money?

While a home warranty isn’t completely foolproof or a solution for everything that could go wrong in your home, it can provide peace of mind. If a plan comes with the home when you purchase it, there’s no downside or cost for repairs (subject to what we have discussed above).

Before deciding to purchase a plan, do your research. Do the match and compare the overall cost of the warranty to potential costs for repairs or replacements for at-risk components.

Make sure the company you go with is reputable, uses certified technicians, and has a reputation for actually paying out claims.

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