A home warranty is a paid program that protects homeowners from unexpected repair costs regarding home systems and appliances. The home warranty contract states that for the fee paid by homeowners, the warranty company will fix or replace covered items that break during the contract period.
Home Warranty Definition
A home warranty is a contract that states homeowners will pay a monthly or annual premium in exchange for the promise to repair or replace covered systems and appliances. Home warranties are designed to prevent homeowners from being stuck with expensive repair bills that can happen when buying an older home (or even a new one).
In the home warranty, homeowners pay the monthly or annual premium. In exchange for the premium, they are covered for problems with things like refrigerators, heating units, and electrical systems, less a trader service fee that is sort of like a deductible.
What a Home Warranty Covers
Home warranties cover either systems or appliances or both. For example, if the homeowners’ garage door opener suddenly stops working, he can call the home warranty company to get it repaired if it’s a covered item. The homeowner pays the trade service fee, often between $50 and $100, and the rest of the repair is paid by the warranty company.
The most common systems and appliances covered by a home warranty company include:
- Air conditioning
- Electrical systems
- Smoke detectors
- Ceiling fans
- Water heaters
- Garbage disposals
- Central vacuums
- Clothes washer
- Clothes dryer
- Built-in microwave ovens
- Trash compactor
- Free-standing ice makers
- Garage door openers
While these are common inclusions, it’s important to read through the coverage offered by any one particular home warranty company. Each company has its own inclusions and exclusions and it’s up to you as the homeowner to do your due diligence.
What a Home Warranty Doesn’t Cover
Every home warranty comes with a list of exclusions. These vary from provider to provider and should be reviewed prior to purchasing a home warranty. An example of an exclusion might be where the plumbing is covered except sewer lines are not.
Other things to pay attention to are the coverage caps. There may be a limit to how much the home warranty company will pay to fix or replace something. Common examples would be a $2,000 cap on systems or a $1,500 limit on appliances. When you look at the limits, be sure to run some basic numbers. For example, a new electrical system can cost upwards of $10,000 but the warranty company may only cover it up to $2,000 leaving you on the hook for the rest. The same with appliances: replacing a high-end refrigerator could cost more than $5,000. If the warranty company has a limit on coverage, you’ll be making up the difference on your own.
What a Home Warranty Costs
Home warranty company costs vary from provider to provider. You can expect to pay anywhere from $300 to more than $1,000 annually for a plan. Keep in mind that the monthly or annual premium isn’t your only cost – there the claims’ cost.
When you call to make a claim on the home warranty, you will have to pay the trade service fee. This fee can range from $35 to $125 per covered item. This is due when the service technician arrives and may be applicable more than once on the same claim.
For example, assume you have a problem with your washing machine and make a claim. You may the trade service fee and the technician arrives to fix the washing machine. In doing so, he notes that the pipe leading to the washing machine is frozen and he cannot disconnect the washer to change the part out without the help of a plumber. The plumber is a second technician who warrants a trade service fee. So in some cases, you may have multiple technicians which would result in multiple trade service fees.
Is a Home Warranty Worth It
Home warranties make the most sense for people who are buying older homes where there is a likelihood of things starting to go wrong. It prevents falling into a money pit scenario. For people who have large cash reserves or are handy and can DIY a lot of things on their own, a home warranty may not be worth it. But for those who don’t have those resources to fall back on, the home warranty can vastly help in-home repairs when things go wrong and mitigate total out of pocket expenses.