Solved! Does a Home Warranty Cover Water Heaters?

Q: At our real estate agent’s suggestion, we bought a home warranty when we purchased our home earlier this year. Today we woke up to a broken hot water heater and a basement full of water! There’s tons of water damage and a lot of cleanup, plus we need a new water heater. We’re not sure how the home warranty works, though. Does a home warranty cover water heater repair or replacement and also the cost of damage cleanup?

A: Few things are worse than stepping into the shower, finding no hot water, and running downstairs shivering to find yourself ankle-deep (if you’re lucky!) or knee-deep (if you’re not) in water. Seeing many of your possessions floating doesn’t help much, either. A leaking or fully blown water heater is an emergency, especially if there’s a deepening pond of water, and even more so if there’s electrical wiring below the height of the flooding. Unfortunately, there aren’t a lot of options for residential plumbing insurance. If you have both a home warranty and homeowners insurance, it can be confusing to sort out who pays for what, and when, but together, they can provide the best measure of protection.

If a real estate agent suggested purchasing the warranty, it’s possible they realized that some of the appliances in your new home were nearing the end of their expected lifespan, which for traditional water heaters is between 8 and 12 years (tankless heaters can last up to 20 years). This was a wise choice, because chances are that the home warranty will cover the cost of replacing the water heater—but you’ll have to look elsewhere for help with the costs of cleaning up the damage.

Home warranties are designed to cover major appliances and built-in systems, which includes a home’s water heater.

Initially, homeowners may be unsure of the differences between a home warranty and homeowners insurance. Many homeowners assume that when something goes wrong in their home, their homeowners insurance will cover it. And in some cases that’s true—damage caused by accidents, weather, fires, vandalism, and a number of other outside factors will be covered by a homeowners insurance policy less the homeowner’s deductible. What homeowners insurance policies do not cover is system failure or damage caused by normal wear and tear. That’s where home warranty policies step up and fill the gap. Rather than insurance, home warranty policies are service contracts or homeowner protection plans that can help cover the cost (with certain limitations) of repairing or replacing whole-house systems. Does a home warranty cover plumbing leaks? It can, in addition to covering problems with systems such as electrical and HVAC, and depending on the policy the homeowner selects, major appliances such as ovens, refrigerators, and laundry machines. If a homeowner is wondering “Is a water heater an appliance?” the answer is generally yes, but some policies will categorize them as appliances and others will include them in the plumbing-system coverage.

Home warranties are policies of inclusion, which means that only those systems and appliances that are specifically listed on the policy are covered. Anything that is not specifically listed isn’t covered. In case of a water heater failure, a home warranty policyholder will want to immediately check their policy documents, and if the water heater is listed, make a service call.

Depending on the policy, a home warranty can cover water heater repairs—and sometimes even replacement—due to issues caused by normal wear and tear.

Because the home warranty is a service policy, customers who have failing water heaters can call the claim number or use a mobile app to report a problem and request a service call. A technician approved by the company will be promptly dispatched (especially if the heater is still leaking water and the customer isn’t safely able to reach the shut-off valve). The customer will pay a service call charge for this visit—an amount that is set at the beginning of the contract and does not vary during the policy period—and then the technician will diagnose the problem and take steps to repair the water heater. If the problem is more than just a leak, policyholders may be able to file a claim on the home warranty to replace a water heater with a new heater of equivalent quality at no additional cost to the customer. Each policy has maximum coverage amounts, so if the customer wants something more than a new water heater of equivalent quality, they’ll have to pay the difference. With water heater costs ranging from a few hundred dollars into the thousands, a replacement through a home warranty company could more than pay for the entire policy.

There are, of course, exceptions. If the water heater has failed due to damage, and not age or normal wear and tear, the home warranty company may deny coverage, so if a heavy box stored in the utility room falls off a shelf and lands on the water heater causing it to crack or break, the technician will likely report the failure as damage-related and the claim will likely be denied. Similarly, if the appliance hasn’t been maintained correctly, the claim can be denied with the reason that the damage was caused by neglect, not normal aging. Once homeowners have a warranty in place, they will want to take advantage of the maintenance and repair visits that the warranty may cover to avoid this type of denial.

While a homeowners insurance policy can help cover any damage resulting from a broken water heater, a home warranty policy can help repair the system itself.

Although a homeowner may not think they need a home warranty, it’s important that they understand the benefits one can bring. A home warranty repair technician will assess and repair a water heater when it’s appropriate, or determine the need to replace a water heater that has failed. Sometimes this means replacing parts at no additional charge to the customer, or it could mean flushing and servicing the system. Other times the policy will cover replacement. What a home warranty will not do is cover the damage caused by the water heater failure or pay to replace property: That’s where the homeowners insurance policy comes into play, although whether it will cover a water heater will depend on whether the malfunction was sudden and accidental, as slow leaks are often not covered by homeowners insurance.

Because homeowners insurance exists to cover damage caused by events other than aging, it won’t pay to repair the appliance itself. However, because the ensuing water damage was caused by an appliance failure, homeowners insurance will sometimes pay to replace property and repair damage. If the damage from a malfunctioning water heater was caught quickly, the repair may be as simple as renting large fans to fully dry the area and reduce the chances of mold formation. Larger leaks may cause enough damage to require carpet removal, floor and wall repair, painting, replacement of furniture, or in some cases, repairs to the concrete making up the basement floor. In the case of a water heater failure with significant water damage, prompt calls to both the home warranty company and the homeowners insurance company are warranted.

If a homeowner has a home warranty, they can call for service for common water heater problems such as no hot water, an incorrect temperature, rusty water, or a leaking water heater.

While many people think of the primary value of a home warranty as the replacement service, the most beneficial aspect of a warranty is that customers can take advantage of repair services that make total failures less likely. Anyone who has ever been responsible for the maintenance of a home knows the fear that strikes when a pipe springs a leak or a light switch behaves erratically: Calling a professional for what seems like a small repair feels like opening Pandora’s box, with endless possibilities for what might be wrong and how much it might cost to repair. Because of this, many homeowners put off small repairs or maintenance visits and stick a little plumber’s tape on the leaky pipe or stop using that unpredictable light switch. These band-aid solutions don’t fix the problems, and putting off repairs lets small problems turn into big ones, sometimes very suddenly.

Home warranties can cover maintenance visits. What does this mean? If a pipe is leaking, homeowners can file a home warranty claim and a technician will come fix the problem for a preset fee. If a homeowner notices that the hot water is only lasting a fraction of the time it used to, they can file a claim, and a technician will come evaluate the source of the problem—possibly a broken thermocouple or heating element, or low gas pressure—and complete the repair. Does the water heater leak when using the washing machine? It’s probably the first sign of trouble, but there’s time to fix it or replace it before disaster strikes. Rusty water can indicate corrosion, metal decay, or mineral buildup in the tank that can cause even the best water heaters to fail sooner than expected, but a warranty claim will bring a technician in to evaluate, then repair or replace the water heater before a disastrous flood occurs, and without risk of skyrocketing costs.

Most home warranty companies have a waiting period of around 30 days before policyholders can file a claim.

Of course, once homeowners who don’t carry a home warranty policy find out about these services, the possibility of abuse exists. Home warranty companies want to help their customers, but they’re still businesses. They charge a fee for the protections they offer, and then fervently hope policyholders never need to use them. Even the best home warranty companies, such as AFC Home Club, need to protect themselves against unscrupulous customers who discover a problem in their home and immediately sign up for a warranty policy so they can make a claim. It’s difficult to enforce home warranty pre-existing conditions exclusions, so the easiest way to protect their business interests is for home warranty companies to enforce a waiting period between the purchase of the policy and when the first claim can be filed. This prevents fraudulent or unethical usage of the warranty policy and prioritizes existing customers for repairs that are honestly covered under current policies. Customers are encouraged to carefully research a home warranty company before taking out a policy. Reading reviews, such as a Choice Home Warranty review or an American Home Shield review, can help homeowners get a better understanding of which company might be the best fit for their needs.

Once the waiting period is over, a policyholder can make a claim for water heater repair and will only pay a service fee.

Most waiting periods in the industry are 30 days. After that time, policyholders can present claims for any service covered by the policy. At the time the policy is executed, the warranty company and the customer will decide on several figures. The first is the premium that the customer will pay to purchase the policy. The most common term is a 1-year home warranty policy, so the premium will cover that period. This cost will vary based on what systems and appliances are included in the policy, what extra coverages have been applied (usually adding something that isn’t in the standard policy for an extra cost), what the service call charge will be, and what the policy maximums are. Once coverage is established along with the maximum payout amounts, the customer will often have a choice between paying a higher premium in exchange for a lower service charge or a lower premium for a higher service charge. Homeowners with newer appliances and services that have been maintained well might choose the lower premium with higher service fees, as they’re buying the policy to guard against unexpected disaster. Conversely, customers with older appliances and systems might opt to pay more up front so they can pay lower costs per service call, as they may anticipate needing to use their warranty more often than someone with newer appliances and systems.

Home warranty policies typically cover all different types of water heaters, including conventional tank water heaters, tankless, electric, and gas.

Because water heaters are considered part of the plumbing system, home warranty coverage generally isn’t dependent on the kind of water heater present. Regular tank heaters, whether fed by gas or electricity, are generally covered. Gas and electric tankless heaters are also covered as a rule. It’s unwise for homeowners to hold off on seeking a policy because of uncertainty about coverage; instead, they’ll want to speak with a representative and ask questions about what is covered under the policy and what surprising items are not.

The exact coverage options for the home’s water heater will be listed in the policy, so a homeowner will want to carefully read the fine print to understand their coverage limits.

A quick internet search brings up plenty of complaints about home warranties, referring to them as scams or money-grabbing enterprises. While of course there are dishonest companies in every industry, reputable home warranty companies are neither scammers nor money grabbers. Contracts can be confusing, however, so while there may be some cases of dishonest behavior, many of the complaints can also be chalked up to unclear contracts or contracts that were not carefully read.

Fortunately, every detail about the policy will be in the policy documents, so carefully reading the plan documents and asking lots of questions before purchasing the policy is tremendously important. Even after a policy has been purchased, it’s not unreasonable for a policyholder to call an agent for clarification about the types of claims that can be filed and how exactly to file them to maximize the benefits of the policy. This knowledge can help prevent disappointment or anger about coverage denials at critical times.

Home warranties can be relatively affordable, especially when compared with the cost of frequent water heater repairs or replacement of an older unit.

Home warranty costs will vary based on the level of plan selected, the size of the home, the number of add-ons, and the selected premium and service fees. The average range nationally is between $264 and $1,425 per year, with the average cost landing around $600. This may seem like a substantial number up front. However, considering the cost of a plumber or electrician walking through the door before even beginning to repair anything (along with the endless financial potential for “project creep”), the policy might pay for itself in just a few maintenance or repair visits. In a home with older appliances and systems, or in a newer home with computerized and smart systems that make life easier but provide more opportunities for things to go wrong, a home warranty from a trusted company could actually be a money-saver. The cost to replace an older water heater with a quality unit from one of the best water heater brands will generally cost significantly more than the cost of the home warranty, especially one the unit itself, labor, and taxes are accounted for. And a home warranty usually covers a range of other home systems and appliances in addition to the water heater. The comfort of knowing that they can call for service for small or large repairs without fearing exploding costs will make a home warranty worth it for many homeowners.