Do You Need a Home Warranty?
Rick Coyne
In 2022 most people hear warranty and think about those annoying spam calls about your car's warranty. Luckily, a home warranty is nothing like that. We promise to answer all of your questions and give you all the details without harassing you during dinner.
What Even Is a Home Warranty?
A warranty is also known as a residential service contract. This contract covers the repair or replacement of certain home systems for the term of the contract.
Isn’t That the Same Thing as Homeowners Insurance?
While the idea is similar to home owner’s insurance the two are very different. A homeowner’s policy protects the homeowner from damage to your home’s structure, theft, or personal injury. According to Rocketmortgage.com, “A home warranty pays for a replacement or repair to the interior appliances and/ or systems due to normal wear and tear or manufacturing defects.”
For example, if your fridge stops working which policy you need will depend on why it stopped working. If your fridge stopped working because lightning struck your home your homeowner’s insurance will cover it. If your 10-year-old fridge stops working and there’s not a cloud in the sky, your home warranty will cover the repair or replacement.
What do Home Warranties Cover (besides fridges)?
Different home warranty providers offer plans that vary in how comprehensive the coverage is, but most plans fall into one of three categories:
- System Plans: These plans only cover specific home systems. Systems that are often covered include HVAC, electrical, and plumbing.
- Appliance Plans: Appliance plans will cover the repair or replacement of home appliances, but not larger systems. Examples include oven, built-in microwave, washer, dryer, and garage door opener.
- Combo Plans: Depending on your policy these plan types will cover a combination of both large systems and appliances.
Coverage for certain items such as pools, roofs, and septic tanks is usually an add-on. Your most robust plans may include limited roof repair, pest control, and annual service calls.
When considering if you need a home warranty one key piece to keep in mind is that home warranty companies set limits on how much they will pay for repair or replacement of covered items. For example, according to the article What Do Home Warranties Cover? from usnews.com the coverage for heating systems among plans they researched ranged from $1,000 to $3,500. Also keep in mind that home warranties do not cover structural elements such as windows, solar panels, fireplaces, foundations, flooring, or paint. Most policies do not cover septic tanks, well pumps, or sump pumps. And, while a warranty will usually cover any misuse or deferred maintenance from the previous owner, some won’t cover a system if it hasn’t been regularly serviced by you.
In addition, your typical home warranty will not cover or have limits on a number of other things. Only normal wear and tear items are covered, and items such as maintenance, rust, corrosion, and sediment damage are generally not covered. Commercial-grade equipment or appliances that are too old, or in poor condition are usually not covered. Pre-existing conditions and items that were found to be faulty by a home inspector before purchase are not covered. For this reason, most warranties have a 30-day waiting period before warranty protection starts.
How Do Home Warranties Work?
Homeowners sign a service contract with a home warranty company, typically for a one-year term. A home warranty has a claims process similar to insurance. Most companies have 24/7 customer service so file a claim as soon as you discover there is an issue.
The company will have a service provider contact you to set up an appointment. According to rocketmortgage.com, they will generally do this within 3-5 business days. In the case of an emergency, most companies claim they will respond within 24 hours, but read your contract carefully as the actual language is generally vaguer.
The service provider will come to your home to diagnose the problem and communicate with the warranty company whether they can repair or replace the unit.
Once a service provider has been to your home you will need to pay a trade call fee, which is similar to a deductible and will have to be paid each time you make a claim.
How Do I Choose a Home Warranty?
Before purchasing a home warranty take the time to carefully research prospective service providers. Read reviews both the good and the bad. Read the contract carefully, making sure you understand the per-diem and annual payout limits, covered systems, and circumstances where coverage doesn’t apply.
According to consumeraffairs.com, there are 3 steps to choosing the right home warranty for your situation.
- Begin by assessing your needs. If you already own a home, begin by taking inventory of the appliances and systems in your home. How old are they? When were they last serviced? Are any of them still under warranty? If you are a homebuyer scrutinize the disclosures and any inspection reports. Ask yourself the same questions, but keep in mind that you may not have the complete picture. You will want to look for a policy that covers any systems that are not under warranty or anything that you are unclear on its age or service history.
- Shop around, getting quotes from two or three home warranty companies. If you have specific needs or concerns be sure to ask the provider to include coverage for it in your quote.
- Once you have the quotes in hand carefully scrutinize them. Read the fine print and be sure that everything you think is covered is, in fact, covered. Consumeraffairs.com cautions that some home warranties may “exclude certain parts of a dishwasher or may only cover one of your two refrigerators.” Be sure you look at details such as when the warranty starts and how long a repair is guaranteed.
Note for Buyers: If you are in the process of purchasing a home you may be able to have the seller cover the cost of your warranty as part of your negotiations.
How Much Does a Home Warranty Cost?
How much your warranty will cost will depend on a number of factors including your home’s location, plan, and service fees. In a recent article, rocketmortgage.com broke down the pricing from five warranty companies. The plans ranged in cost from $36 to $60 a month with service fees ranging from $45 to $125 per call. This means that the average yearly cost of a home warranty is around $500.
Shawna Bell of Landmark Home Warranty said in her recent interview with realtor.com that the policies offered to buyers during the home purchase “typically offer the most comprehensive coverage and price points…” This fact paired with the ability to negotiate covering the price of the plan with the seller makes home buying an even more ideal time to purchase a home warranty.
Finally, Do You Really Need a Home Warranty?
Ultimately whether or not you need one will come down to your circumstances. Here are some pros and cons to consider before purchasing a policy.
Pros: A home warranty provides peace of mind and limits the number of unexpected costs. If your home has older appliances or you are uncertain about the longevity of certain systems a home warranty will provide a safety net. This is also good for those on a tight budget such as seniors and first-time home buyers. It should also be noted that home warranties can benefit both buyers and sellers. It will give buyers protection against sudden issues and helps sellers keep their homes in good repair during the listing period.
Cons: A home warranty doesn’t cover everything and there are often coverage limits. If you are purchasing a new home, or the systems in your home are under warranty you could pay premiums for years without even making a claim. Many people also argue that if you are handy you can often make repairs cheaper yourself, or that if you save the premium every month you’ll have plenty of savings for unexpected repairs.
Home warranties are not for every homeowner, but with a little research and some careful consideration, you can decide if a home warranty makes sense for you.
