Home Warranty Coverage: What It Is and How It Works
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 home warranty coverage you need.
Q: My real estate agent has advised that I get home warranty coverage for a home I’m considering buying. It seems like a good idea since the home is older, but I’m concerned that there could be 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 worry that what the home warranty promises is too good to be true. Policies sold by the best home warranty companies 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.
Essentially, a home warranty is a service contract for the systems or appliances that are included in its coverage. The homeowner pays an annual premium, and when a covered appliance or system stops working, they call the warranty company. The company sends a technician, for which the homeowner will pay a set service fee (usually between $50 and $125, depending on the 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 buy one.
A home warranty is not the same as homeowners insurance.
When comparing home warranties vs. homeowners insurance, property owners should know that they 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 the policyholder financially from damage caused by fire, property crime, weather-related incidents, and (in some cases) water. If the home is damaged by one of these events, an insurance adjuster will come to the home to evaluate the cost of the damage, determine what is covered, and give the policyholder a check for the cost of restoring the home to its original state, minus the amount of the deductible and 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 for coverage to apply.
Home warranties, on the other hand, do not cover damage that results from 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 in that regard. 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. The homeowner will pay the cost of the service fee (which is a set amount determined by the 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 will be outlined in the contract.
In addition, home warranty coverage is not required to get a mortgage and buy a house, while homeowners insurance is required by mortgage lenders to protect the collateral on the home loan. Together, though, 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. Are home warranties worth it when appliances are covered by a manufacturer’s warranty? It may depend on the expected working life of those systems or appliances as well as the cost to repair or replace them if they malfunction. Manufacturers’ warranties run 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 pay for repairs. A home warranty is designed to cover the repair and replacement of products and systems that fail because of age and use, so it will cover scenarios that are often excluded by manufacturers’ and installer’s warranties.
A home warranty covers service, repairs, or replacement of major home appliances and systems.
What does a home warranty cover, exactly? The best home warranties can pay for a wide variety of home repairs that would otherwise be very expensive to address. Say, for example, a pipe in the ceiling springs a leak. The homeowner first notices the water pressure is low and then spots a small wet spot on the ceiling. Common sense says to shut off the water and call a plumber. But plumbers are expensive, thinks the homeowner, and it rained really hard earlier in the week, so maybe there’s just a tiny leak in the roof. The spot isn’t getting bigger, so it can wait.
This costly scenario is exactly why some homeowners need a home warranty. The reason the spot isn’t spreading is that the leak has gotten bigger, and the water is now coursing down the pipe, into the wall, and pooling in a corner of the basement floor where it won’t be discovered for weeks or longer, when the homeowner identifies a musty scent in the basement and realizes that mold has taken over inside the walls and ceiling.
With a home warranty, the homeowner would have known that calling a plumber would only cost them the service fee outlined in their home warranty contract. 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 completely. As such, a home warranty could have helped prevent one of the worst money mistakes a homeowner can make: ignoring a small problem until it becomes much worse.
Getting coverage with one of the top home warranty companies can take the fear out of calling a professional to address problems in the home so that they can be fixed while they’re still relatively small problems. This concept applies to all covered systems and appliances—if the pilot light won’t start, the same circuit breaker keeps flipping when a light is turned on, 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 the home to evaluate the problem without the homeowner worrying about covering the full cost to replace an entire 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 services so homeowners can choose to cover what they need to and avoid paying a lot of extra money for unnecessary coverage. 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, ductwork, plumbing, and electrical systems and their components. Water heaters are also usually included in these packages.
Policies that cover appliances differ slightly depending on the home warranty plan: Most cover the kitchen refrigerator, oven, 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.
Home warranty cost is not the only factor to consider when looking for a policy. It’s important to look closely at home warranty coverage terms because they may not cover all appliances or their features. For example, while most appliance policies cover the kitchen refrigerator, they may exclude the ice maker or an extra fridge stored in the basement or garage. In addition, there are certain home features that are rarely included in packaged policies, but may be covered by purchasing add-on options with an extended home warranty. Pools, spas, and jetted tubs are notoriously expensive to fix, so it may be possible to add these to a policy, but for an additional cost. Home warranty roof coverage is often handled in a similar way, assuming roof leaks are covered at all. Solar panels are usually not covered, either, as they are considered part of the home’s structure.
Homeowners may be able to expand their home warranty coverage to include detached structures on the property, such as guest houses, by purchasing an add-on option. Some home warranty companies may also offer add-ons to cover rental units, such as an apartment above the garage. Other add-on options may include well pumps, septic pumps, or electronics such as TVs, PCs, or laptops.
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 it will pay out for certain events. The contract will specify what the repair and replacement limits are: Some home warranty plans include a limit of $500 per appliance, while others have different caps for different items (for example, $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 dissuade homeowners from purchasing a warranty, but it’s good to know what home warranty coverage is included before buying a policy.
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 require the expertise of 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 a 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, a 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. Therefore, there are some limits to consider.
One condition that many policies include is regular maintenance. It’s the homeowner’s responsibility 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 the covered systems haven’t been properly maintained, then they may be able to deny the claim. This is upsetting to many policyholders, but it’s not unreasonable: If a boiler hasn’t been serviced in 10 years and is in such disrepair that it needs to be replaced, a reasonable technician can note that it wouldn’t need an expensive replacement had it been maintained in the first place.
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, many of the best home warranty companies offer policies that begin when the homeowner purchases the home; if appropriate maintenance has been done since the purchase date, the company will honor a claim, even if the prior homeowner did not maintain the home’s systems and appliances.
Homeowners may need to curb their DIY instincts when it comes to appliances and systems covered under a home warranty. Once a homeowner has tried to correct a problem themselves, it can be difficult for a technician to see if the problem was something that was covered initially or if the homeowner made it worse while trying to fix it. If it’s apparent that the DIY fix actually made the situation worse, the warranty company can deny coverage and even void the warranty. 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.
“What is home warranty coverage and what does it include?” may seem like a simple enough question to answer, but it can get complicated because there could be exclusions depending on the specific circumstances of the claim. When policyholders find fault with their home warranty company, often it’s because a claim was unexpectedly denied. 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 so the homeowner fully understands what coverage is included. 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 beforehand if the covered pest invasions exclude termites, carpenter ants, and rats—in other words, the pests that are most likely to appear.
In addition to carefully listing what is included and excluded, the policy document will list the service fee, whether the service fee is per visit or per event, and the payout limits for each event and policy period. If there’s a dispute with the warranty company, the terms listed in that policy document will provide the best argument for coverage, so it’s good to know exactly what is included. Homeowners can also avoid getting caught off guard when something isn’t covered by their home warranty.
The best home warranty coverage for you depends on different factors, including your budget and your home’s age.
Home warranties, like homeowners insurance policies, are a balancing act. Property owners pay for a policy they hope they’ll never need to use because that would mean something has gone wrong. When weighing home warranty cost, homeowners need to consider how much they’re paying for the policy against the likelihood that they’ll need to use it.
Older homes typically have older systems and older appliances. Even if those systems and appliances have been updated, the updates have been fitted into a home that may have been built with outdated specifications and building codes. New ductwork that replaced a radiator-based heating system can be well done, but the spaces into which the ductwork has been forced weren’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. With that in mind, new construction home warranty policies can offer some much-needed financial protection in the right situation.
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 each household’s needs, a home warranty policy can complement a homeowners insurance policy to provide a broad financial safety net. In fact, many of the more dramatic events 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 cost of hiring a plumber to repair the pipe, and the homeowners insurance will likely pay for a contractor to replace and paint the drywall and repair the ceiling and floors, less the deductible. It may also cover any mold remediation costs that the homeowner incurs.
If a homeowner were left to cover all of those expenses on their own, the total cost would be considerable. Taking into account that the average cost for a home warranty is $600 a year, property owners may come out ahead by buying home warranty coverage rather than taking a chance that their appliances and home systems will continue running as expected for the foreseeable future. In addition to the annual premium, home warranty cost may be impacted by the service fee, which is an additional cost that needs to be paid when making a claim, as well as any add-ons that are purchased to extend home warranty coverage.
To get the right policy that fits their needs and budget, homeowners should check out several of the top home warranty companies, see what’s covered, find out how much the premiums and service fees will be, and review any coverage conditions and exclusions. After getting a suitable home warranty, homeowners can enjoy the peace of mind that comes from knowing that covering the cost of repairing a burst pipe or faulty appliance won’t mean cutting back on other important expenses.