Home Warranty 101: Getting Started

What is a Home Warranty?

Every day, your family counts on appliances and systems like the water heater, washing machine and refrigerator to keep life running effortlessly. Unfortunately, normal wear and tear on these machines over time can cause mechanisms to malfunction or break. Gratefully, home warranty protection plans are available to help you exchange or repair these appliances and systems. If you own a house or are planning on buying one, you can get a home warranty. It is quite common to be offered a home warranty when you buy a home. Real estate agents or even the current homeowner may offer a home warranty if they are selling an older home. In most cases, home warranties are transferrable to the new property owner as well.

How Does A Home Warranty Work?

Home warranty coverage lasts for a specified contract term, generally a year or two. Afterwards, the new owner can either renew or cancel the service contract. A home warranty is helpful in a number of ways. Instead of making a service call to your local repairman if a major system or appliance breaks, you would contact the warranty provider. The provider would then request a repair through a third-party service provider with whom they have a business agreement. That service company would then contact you to schedule an appointment for examination and repair. Bear in mind that some home warranty companies may have a service call fee for any repairs. This fee is not included in the real cost of the repair. However, these protection plans are considered wise investments especially if you have recent appliances, technologies or systems in the home. Once the manufacturer’s warranty expires, a home warranty can continue to cover repair and replacement costs due to normal wear and tear. You are however still responsible for breakdowns caused by neglect or improper use.

Do I need a Home Warranty?

Home warranties can be very convenient when important mechanical systems or expensive appliances break down without warning. And they can be particularly useful for new homeowners or potential buyers with little or no accumulated savings. In summary, a good home warranty can help spread out costs. By doing a casual cost-benefit analysis, you will be able to know if paying an annual premium is beneficial for you and your home. Start by considering potential repair costs versus average premium costs. You also may want to ponder on the age of your mechanical system or household appliance. And remember, as with any contract, it is all in the details.

Home Warranty vs. Homeowner’s Insurance

Many first-time homeowners get home warranties and homeowners insurance confused. The difference between them is very important to understand. Homeowner’s insurance covers accidental damage to the home’s interior and exterior, personal property that is damaged or stolen, and injury that occurs on your property. Unlike appliance damage that happens naturally over time, homeowner’s insurance covers events that may or may not happen such as burglary, fire, damage from storms or some other natural disasters, and flooding from broken pipes. A home warranty helps cover the repair or replacement of an appliance or system component due to wear and tear. A home warranty may help protect components of your heating, ventilation, and air conditioning, electrical and plumbing systems as well as your appliances.

How much will it cost?

When assessing a home warranty, make sure you entirely comprehend how much it will cost. This includes taking into account the initial cost, service fees and any other expenses. The exact price of a home warranty depends on the coverage level you choose. A typical annual cost might be $200 for major appliances and $800 for a policy covering HVAC, plumbing and electrical systems. If you are purchasing a home, the warranty premium is part of the closing costs. Nevertheless, the question of which party pays the premium is open to negotiation. Responsibility for payment can be transferred solely to the seller or shared between the seller, buyer and realtor. Some home warranty policies have a deductible of about $100 or the repair cost, whichever is less. If your warranty carries a deductible, that fee would apply to each reparation. And while you will not be paying the actual repair or replacement costs, you may be accountable for paying a trade service fee of about $50 – $125 for each repair. This fee, outlined in your agreement, will cover the service provider’s analysis of the problem.

What Is Covered by a Home Warranty?

It depends on the company and plan, but most home warranty companies offer coverage for mechanical systems like plumbing, electrical, heating, and air conditioning. Most home warranty companies also feature plans that cover appliances. These include refrigerators, ovens, dishwashers, washers, and dryers. As a rule of thumb, home warranties do not cover mechanical systems or home appliances that have been accidently misused, damaged on purpose, or maintained inadequately. Likewise, certain home warranty companies will not replace nonmechanical parts, such as handles or knobs. Home warranty contracts dictate that repairs are not covered if problems or defects were documented before the start date of your coverage. If you have an old appliance you want a home warranty to cover, you will need to make sure that your contract lists it as a covered item. Above all, you should thoroughly read your home warranty contract—both before and after you sign it—to understand your coverage, including its limitations and exclusions. We know that sounds tedious and boring, but certain limitations may indicate exactly how much money your home warranty company will pay to repair or replace covered items..

Home Warranty Limitations

Reliant on your plan, there may be an annual limit on how much the provider will pay. For plans covering one item, the limit might be $1,000 – $2,000 each year while more exclusive plans will have a higher limit. Be sure to read your policy to determine your exact coverage. Providers can also refuse to make payments under certain conditions. This may be the circumstance if they deem a repair to be too expensive. When that happens, the provider might propose to replace the item or pay the depreciated value. The home warranty provider may deny payment for a few other reasons. If you have not performed any required maintenance, you may receive a denial. They may also deny you if the appliance or system was not installed properly or if there are code violations. Last of all, you can also receive a denial if there is excessive wear and tear or if there was a preexisting condition.

How to Buy a Home Warranty

If you decide that a home warranty is worth it, the submission process is very simple. First of all, get a free online quote from at least three home warranty companies. Their quote should clearly state the covered and non-covered expenses. You should also see a sample coverage plan with the terms and conditions for your geographical location. After choosing a plan, the home warranty company may require a home examination. An inspection can also be mandatory if you add an item within 60 days of your policy start date. When your policy starts, be sure to follow the terms and conditions. Remember to perform routine maintenance and keep the correct documentation at hand.

Final thoughts

With the rising popularity of home warranties, the number of companies offering these services is growing as well. It is getting harder to choose the best and most reliable option as many new providers offer very attractive plans. Take your time, do your research and everything will turn out just fine.