What Does a Home Warranty Cover?

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Average Home Warranty Annual Cost

Things You Should Know

  • A home warranty is a contract that usually covers the costs of the repair and replacement of home systems and appliances.
  • A standard home warranty lasts for 1 year, but some can last as long as 3 years.
  • Before purchasing a home warranty, a homeowner should think about what appliances and what systems they want to cover.
  • Home warranties usually cost around $300 - $600 and have a coverage cap of $2000 - $3000.

What is a Home Warranty

A home warranty is a contract between a homeowner and a third party that covers the costs of repair and replacement of critical systems and appliances if something is broken. These systems and appliances usually include:

  • Ventilation and Air Conditioning System
  • Heating System
  • Plumbing
  • Electrical Wiring
  • Refrigerator
  • Water Heater
  • Washer and Dryer
  • Oven and Dishwasher

A home warranty focuses on the systems and appliances that need to be replaced. Unlike a homeowner’s insurance, a home warranty is not typically responsible for the damages to the property and other structures, or lawsuits and claims against the property. Home warranties are usually optional although they may be required by some mortgage lenders to get approved.

To benefit from a home warranty, a homeowner must first purchase it from a reliable company. Sometimes a listing agent may give a 1-year home warranty as a gift when buying a house. A standard home warranty contract usually lasts for 1 year, but it can also last as long as 3 years. It is important to understand what the company is offering in its warranty. It may be the case that a homeowner purchases an expensive warranty that covers a lot of appliances and systems that the homeowner does not even have. To save money and benefit from the warranty, the owner should look for warranties that cover what may break soon. For example, if a homeowner just recently purchased a brand new washer and dryer that has a factory warranty on it for another 2 years, it does not make sense to overpay for a year-long home warranty that includes repairs of the washer and dryer.

The warranty may not be of use in some years, but it may come in handy when something breaks unexpectedly. Because of it, it is recommended to renew a home warranty as soon as one expires to make sure that the appliances are covered. When something breaks that is covered by the warranty, the homeowner simply needs to contact their warranty company and make a claim for the repair. From there a warranty provider will contact a trusted repair provider to notify about the repair needed. As soon as the repair company is notified, they will call the homeowner to schedule an appointment.

Top-Ranked Home Warranty Companies
Home Warranty of America
American Home Shield
First American Home Warranty
America's 1st Choice Home Club
American Residential Home Warranty
Choice Home Warranty

What Does a Home Warranty Cover

Home warranties range in their prices and the services they provide. Before purchasing a home warranty, a homeowner should think about what they want to be covered. Reading through what each warranty covers, how much it costs, and picking the most suitable offer may save a homeowner some money and benefit them in the long term. There is no best home warranty for everyone as the suitability of each warranty is determined by the needs and objectives of the homeowner.

There are typically 3 types of warranties offered:

  • Systems Plan: This plan usually covers all critical systems such as air conditioning, heating, ductwork, plumbing, electrical wiring, water heater, ceiling fans, and smoke detectors. Many appliances in the house could be considered critical systems, so it is important to read through the agreement to understand what exactly is covered in this plan.
  • Appliance Plan: This plan typically includes several appliances, but it may also be issued for one specific appliance in some cases. This plan usually covers appliances such as a refrigerator, dishwasher, dryer, washing machine, oven stove, and built-in microwave.
  • Combination Plan: Combination plans include both system plan and appliance plan. Some warranty companies may also allow customization of combination plans to suit the needs of the purchaser.

Most warranty companies also offer an optional warranty for items that are not included in the plans. These items may include a pool, hot tub, spa, or second refrigerator.

What a Home Warranty Does Not Cover

Home warranties may be handy when an appliance or a critical system breaks down in the house, but it has some limitations. Home warranties have a coverage cap of around $2000 - $3000 per year. This means that the warranty can cover up to $2000 - $3000 in repair and replacement costs. If the costs are above the coverage cap in any given year, then the provider may decline further repair requests for the remaining year.

A home warranty covers only what is listed in the contract, so it is important to look closely at what is included in the home warranty. The list below describes items that are most likely not covered by a home warranty. This list is not exhaustive as there are many more items that are not covered by a home warranty.

What is not covered by a home warranty:

  • Structural damages to the property
  • Appliances and systems that are not in the agreement
  • Windows, doors, and walls
  • Solar systems and their components
  • Anything that a home inspector refused to cover previously
  • Repairs related to improper maintenance, improper use, and negligence
  • Identification and removal of hazardous materials such as asbestos, radon gas, and mold
  • Non-essential components of items included in the contract. Non-essential components may include remote controls, timers, oven racks, etc.

For an item to be coverable, the issue has to result from normal wear and tear or a defect of the covered item. There are multiple reasons why a warranty provider may refuse the claim on a covered item. Some of the reasons why a provider may refuse the claim include:

  • Improper installation of an appliance
  • Poor maintenance or negligence of the covered item
  • Improper use of the item, which results in unusual wear and tears
  • An issue that is not a result of normal wear and tears
  • There are contract violations present

How Much Is a Home Warranty

Usually, basic plans for home warranties range from $300 to $600 per year. The cost may vary depending on what is included in the coverage. The type of property also plays a role. Generally, condominiums tend to have a cheaper warranty of about $50. The more items included, the higher the price will be. It is important to consider what type of plan to buy and whether the buyer needs additional coverage. Considering these factors may change the price of the warranty by a few hundred dollars.

There is also often a hidden cost that comes with a home warranty. A service fee is charged every time a buyer files a repair request. It usually ranges from $50 to $125 per request. It is possible to ask for a lower service fee, but in this case, the buyer should expect a price increase for the warranty. As a rule of thumb, the lower the service fee, the higher the price for the warranty.

Are Home Warranties Worth It

Regardless of how well-built the appliances and systems in the house are, they have a lifespan and require repair from time to time. The homeowner will likely need a repair or replacement of some appliances at one point. Even though some items will need to be repaired, it does not necessarily mean that the homeowner should buy a home warranty right away. Some factors may affect the homeowner’s decision to purchase a warranty and what to include:

  • Homeowner’s experience of maintaining appliances and systems.

    If the homeowner is experienced in maintaining and even repairing minor issues occurring in the system, then they might not benefit as much from the home warranty. It makes sense to get a home warranty when the homeowner does not know how to deal with the repairs on their own.

  • Ability to pay for the repairs and replacements.

    A home warranty is similar to a gamble in a way that there is a level of uncertainty present in each given year. It might be the case that nothing breaks over a year, which means that the homeowner does not get any benefit from purchasing the warranty. If the homeowner can pay for repairs and replacements out of their pocket and is reasonably sure that nothing will break over the year, then it might be wise to opt-out of the home warranty to save some money.

  • The plan’s coverage, conditions, and fine print.

    When it comes to specific warranty providers and agreements, a homeowner must read through the coverage and conditions to estimate whether the price of the warranty is worth the services provided. Reading the fine print is also very important as it may contain essential information regarding the terms and conditions that must be satisfied to receive the services.

  • The age of appliances and home systems.

    If the house is newly built, and all appliances and systems are of high quality, then the probability of something breaking might be very low. In this case, it might be wise to opt-out of the home warranty because it is unlikely that there will be any benefit to it.

Ultimately, it is the homeowner’s decision whether a certain home warranty is worth the money. Sometimes a home warranty may be included when purchasing a property to offset high closing costs in some states. The homeowner has to weigh the pros and cons, the condition of the items, and their willingness to take a risk for paying for repairs. It is also important to understand what a typical home warranty includes because it might not be the most appropriate insurance for every household, especially the main concern is the structural integrity of the property.

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