Home Warranty Coverage: What Does a Home Warranty Really Cover?
Home warranties can be a great complement to a homeowners insurance policy, but you’ll need to read the fine print to make sure you’re getting the coverage you need.
Q: My real estate agent has advised that I get a home warranty on a home I’m considering buying. It seems like a good idea, as the home is older, but I’m concerned that there are loopholes and it won’t cover a problem when one occurs. What does a home warranty really cover?
A: This is a great question—and home warranties aren’t just for home buyers, either. Sellers and existing homeowners may look at the best home warranty companies and worry that what the warranty promises is too good to be true. Policies sold by reputable home warranty companies aren’t scams, but they do have specific purposes, limitations, and exclusions, so it’s important to understand what those are as you decide whether purchasing one is right for you—or requiring that a home seller purchase one as part of the sale.
The cost of home warranty coverage is based on the size and type of the home, along with what the policyholder chooses to cover. Most home warranty companies offer bundles of services that cover whole-home systems (such as electric, plumbing, and HVAC), appliances (including laundry and kitchen appliances and garage door openers), or a combination of the two. In addition, most companies offer add-on options for an extra fee to cover items such as spas and pools, roof leaks, and well pumps.
But what is a home warranty?
Essentially, a home warranty is a service contract for the systems or appliances that you’ve opted to cover. You pay an annual premium, and when a covered appliance or system stops working, you call the warranty company. They’ll send a technician, for which you’ll pay a set service fee (usually between $50 and $125, depending on your contract). The technician will evaluate the problem and determine the cost of the repair or replacement, which the warranty company will pay for assuming all conditions have been met.
But you’re right—home warranties are a little complicated, and your understanding of what the product is and does is important before you commit to a purchase or ask someone else to.
A home warranty is not the same as homeowners insurance.
Home warranties and home insurance cover two different sides of the financial aspect of maintaining a home. The concepts are similar: Pay an annual premium, choose a deductible or copay, and when a covered incident occurs, the company will cover part or all of the financial expense that results from the incident. Adding to the confusion, some states require different terminology to describe home warranties. In some areas, the policies must be sold as home warranty insurance. The main difference is what the policies cover.
Homeowners insurance protects you financially from damage caused by fire, property crime, weather-related incidents, and (in some cases) water. If your home is damaged by one of these events, homeowners insurance will send an adjuster to the home to evaluate the cost of the damage, determine what is covered, and give you a check for the cost of restoring your home to its original state, minus the amount of your deductible, and sometimes capped at a certain amount set by the policy. Homeowners insurance specifically does not cover damage related to wear and tear, normal use, or age—the damage must be the result of a covered event.
Home warranties, on the other hand, do not cover damage that is a result of accidents or actions. They are service policies designed to defray the cost of repairs or replacement to major home systems or appliances that result from age and normal wear and tear—so they are basically the opposite of a homeowners insurance policy. If a covered system or appliance stops working, a technician will come to the home to evaluate the problem and make a recommendation for a repair or replacement. You’ll pay the cost of the service fee (which is a set amount determined by your contract), and the warranty company will cover the cost of the repair or replacement. As with homeowners insurance, the coverage may be limited to a certain amount per incident, which you’ll already know from your contract.
Together, homeowners insurance and a home warranty can provide financial protection against accidents and damage-causing incidents along with the natural aging process of home systems and appliances.
A home warranty is also not the same as a manufacturer’s warranty.
Home warranties offer the option of covering major home systems and appliances. Most of these systems and appliances come with their own warranties from their manufacturers and/or their installers, so you may be wondering why anyone would want a home warranty. Here’s the reason: Manufacturer’s warranties are for a limited period of time, and they cover defects in manufacturing, not age- or use-related failures. So unless you can demonstrate that the product was faulty from the beginning, the manufacturer’s warranty likely won’t cover it.
Similarly, guarantees and warranties offered by installers and professional contractors cover the workmanship they’ve provided. If the installation was done correctly and the product still fails, the installer’s warranty won’t help you. A home warranty is designed to cover the repairs and replacement of products and systems that fail because of age and use, so it will cover things that are excluded by manufacturer’s and installer’s warranties.
A home warranty covers service, repairs, or replacement of major home appliances and systems.
Let’s set an example: A pipe in the ceiling springs a leak. You first notice that the water pressure is low and then notice a small wet spot on the ceiling. Common sense tells you to shut off the water and call a plumber. But, you think, plumbers are expensive, and it rained really hard this week, so maybe there’s just a tiny leak in the roof. The spot isn’t getting bigger, so it can wait.
This is what a home warranty is designed to prevent: The reason the spot isn’t spreading is that the leak has gotten bigger, and the water is now coursing down the pipe, into your wall, and pooling in a corner of the basement floor where you won’t discover it for weeks or longer, when you identify a musty scent in the basement and discover that mold has taken over inside your walls and ceiling. With a home warranty, you’d have known that the call to the plumber would cost just what your contract specifies for a service call. The plumber would have come out that first day, evaluated the situation, cut a small hole in the ceiling, and repaired the leak, preventing the problem from spreading and becoming much larger. In addition, the plumber would probably have replaced the shut-off valve that didn’t quite shut the water off when you turned it.
Home warranties take the fear out of calling a professional to address problems in the home so that they can be fixed while they’re still small problems. This concept applies to all covered systems and appliances—if your pilot light won’t start, the same circuit breaker keeps flipping when you turn on a light, the water heater isn’t heating well, the air conditioner is blowing lukewarm air, or the freezer has defrosted and leaked, a call and a set service fee will bring a professional into your home to evaluate the problem without worrying about whether you have enough of a financial cushion to replace a whole system.
A typical home warranty covers systems like electrical, ductwork, plumbing, and others, in addition to appliances like ovens, dishwashers, and more.
The best home warranty companies offer tiered service so that homeowners can choose to cover what they need to and not pay a lot of extra money for coverage they don’t need. These plans usually fall into two categories: whole-home systems and appliances.
Policies that cover whole-home systems will include the systems that run through the entire home and are central to its operation, such as heating, central air conditioning, and the ductwork associated with both, the electrical system and components, and the plumbing. The water heater is also included in these packages.
Policies that cover appliances differ slightly depending on which home warranty plans you consider: Most cover the kitchen refrigerator, oven or range, dishwasher, built-in microwave, and garbage disposal, along with the clothes washer and dryer. Some also include the garage door opener and air conditioning units.
Combination plans bundle whole-home systems and appliances into a single package with a lower premium than if purchasing the policies separately.
A basic home warranty only covers certain appliances and services; others may be covered with an add-on to your policy—or not covered at all.
It’s important to evaluate the appliances and systems that you have in your home as you compare policies; you’ll want to make sure that you’re getting the best deal based on what you want to protect. For example, most appliance policies cover the kitchen refrigerator—they may exclude the ice maker and the extra fridge you have in the basement or garage. In addition, there are items that are rarely or never included in packaged policies, so you’ll need to see if they are available as add-ons if they are part of your home. Pools, spas, and jetted tubs are notoriously expensive to fix, so they’re often available to add to your policy at an additional cost. Roof leak policies are similar, and they are not offered at all by some companies. Solar panels are usually not covered, as they are considered part of the home’s structure.
Some home warranty companies specify the amount of money they will pay for specific systems and appliances.
A home warranty company makes a calculated risk: It’s counting on enough people paying in premiums to balance against what it needs to pay out in order to remain profitable. So from a company’s viewpoint, it makes sense to place limits on the maximum amount they will pay out for certain events. Your contract will specify what the limits are: Some home warranty plans include a limit of $500 per appliance, while others have different caps for different items ($500 for the washing machine, but $1,000 for plumbing). And most plans have a total cap per year for all events. The best home warranty company caps are reasonable, and they shouldn’t be a reason to shy away from purchasing a warranty; but take care as you read the policy so that you’re not surprised.
Commercial-grade appliances and systems are not typically covered by a home warranty.
Some homeowners love the idea of a commercial-grade kitchen outfitted with high-end stainless steel appliances. These are great tools for cooks, but the appliances themselves usually can’t be serviced or repaired by traditional contractors—they need technicians who are specially trained in individual brands. As a result, these systems and appliances are usually not covered by home warranties, because the repair and replacement costs are too high for coverage to be sustainable.
Why and when a system or appliance needs repair is the main factor in whether or not its repair or replacement cost will be covered by a home warranty.
This is a gray area, and its interpretation is primarily why some people are uncertain about home warranty plans. Like any contract, the home warranty has limits and conditions that need to be met in order for the contract to be executed, and the warranty companies have to protect against unethical use of their services so that they can continue to offer a good product. So there are some limits.
One condition that many policies include is regular maintenance. As the homeowner, it’s your job to keep up routine maintenance, inspection, and cleaning of the home systems and appliances. If a claim is filed and the warranty company can demonstrate that you haven’t held up your end of that bargain, they can deny the claim. This is upsetting too many policyholders, but it’s not unreasonable: If a boiler hasn’t been serviced in 10 years and in such disrepair that it needs to be replaced, a reasonable technician can note that it wouldn’t need replacement if it had been maintained, and the company can deny the claim.
Unfortunately, this kind of claim denial often strikes new homeowners, who find out (often too late) that the previous homeowner did not maintain their systems and appliances, so the warranty they were offered with their home purchase is essentially useless. To combat this problem, a number of home warranty companies have begun offering policies that begin when the homeowner purchased the home; if appropriate maintenance has been done since the purchase, the company will honor a claim, even if the prior homeowner did not maintain their systems and appliances.
Are you a homeowner who prefers DIY repairs instead of calling a professional? If you have a home warranty, you’ll need to curb this instinct when it comes to covered appliances and systems. Once you’ve tried to correct a problem yourself, it can be difficult for a technician to see if the problem was something that was covered initially or if you made it worse while trying to fix it. If it’s apparent that you made it worse, the warranty company can deny coverage and the warranty will be voided. One of the conditions that most warranty companies enforce is that all repairs, maintenance, and service must be completed by qualified and licensed professionals, so limit the DIY repairs to parts of the home that aren’t covered by the warranty and keep all documentation of professional maintenance and repairs handy to show to the warranty company.
Routine maintenance can be costly, but it’s necessary to prolong the life and protect the function of the home systems and appliances. To that end, many home warranty policies offer incentives, coverage of, or reimbursement for scheduling regular cleaning and safety checks of covered systems and appliances.
Read a home warranty policy’s fine print carefully to understand the extent of coverage.
When policyholders find fault with their home warranty company, most often it is because they have been taken by surprise. Nobody likes to be taken by surprise, especially when the cost of the surprise is an unexpected financial burden. Much like the privacy policies on apps and the repayment clauses on mortgages, a home warranty contract is something that should be read slowly and carefully with a pen in your hand and a pad of sticky notes nearby so that you can flag areas you don’t understand or items about which you have questions. Pay especially close attention to the fine print or caveats noted by asterisks and even tinier print at the bottom. It’s better to know before you sign if the pest invasions that are covered excludes termites, carpenter ants, and rats—in other words, the pests that are most likely to invade.
In addition to carefully listing what is included and excluded, your policy document will list the service fee, whether or not the service fee is per visit or per event, and the payout limits for each event and the policy period. Do not assume that anything that isn’t written in the contract is true, because if you have to fight for coverage, the document that is in your hand as you sign it will be your best weapon. In all likelihood, if you’ve carefully read the document you won’t need to engage in a dispute, because you’ll be well versed in the specifics of your policy and won’t be caught off guard when something isn’t covered.
The best home warranty coverage for you depends on different factors, including your budget and your home’s age.
Home warranties, like your homeowners insurance policy, are a balancing act. You’re paying for a policy that you hope you won’t need to use, because using it means that something has gone wrong. So you have to balance how much you’re paying for the policy against the likelihood that you’ll need to use it.
Older homes have older systems and older appliances. Even if those systems and appliances have been updated, the updates have been fitted into a home that was built for a different time. New ductwork that replaced a radiator-based heating system can be well done, but the spaces into which the ductwork has been forced wasn’t built for it, so complications can arise. An updated electrical panel and upgraded service may overtax aged circuits that were designed to handle less of a charge. In an older, well-maintained home, a home warranty is a great option to protect the homeowner from the natural aging process of the systems.
It may initially appear that a warranty may not be necessary on a newer home—after all, the systems and appliances have barely had time to age. However, newer homes feature highly complex systems including smart-home wiring, security systems, hardwired smoke detectors, and elaborate connectivity programs, each of which provides plenty of opportunities for systems to break down. In addition, newer homes have appliances and systems that are untested—and many people have experienced an appliance failing immediately after the manufacturer’s warranty ends.
The savvy homeowner will assess the age and condition of their home’s systems and appliances, shop through and compare the best home warranty company plans they can find, and see how much coverage they can get for the systems and appliances that they need while keeping to a budget that they can afford even if they never need to use the policy.
A home warranty can be worth the cost with the right policy.
Carefully chosen and tailored to your needs, a home warranty policy can complement your homeowners insurance policy to provide a broad financial safety net. In fact, many of the more dramatic events that happen for which claims are made on these policies are most easily remedied by a combination of warranty and insurance. If the pipe that burst in the ceiling caused significant mold growth and damage to the ceiling, drywall, and flooring, the home warranty will cover the repair of the plumber and materials to repair the pipe, and the homeowners insurance will likely cover the cost of a contractor and materials to replace and paint the drywall, repair the ceiling and floors, and abate the mold.
In order for this to work for your home, you’ll want to check out several home warranty companies, break down the ins and outs of their policies, see what’s covered, find out how much the premiums and service fees will be, and make sure you’re clear on conditions and exclusions—then select the policy that best fits your needs and meets your budget. Then you can enjoy the peace of mind that comes from knowing that covering the cost of repairing a burst pipe won’t mean you can’t pay the mortgage.