What Is a Home Warranty, and What Does a Home Warranty Cover?

A home warranty can provide peace of mind to new and existing homeowners by covering the cost of expensive home systems and appliances when they fail.

What Is a Home Warranty

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Q: I’m house hunting for the first time, and I’ve noticed that some listings note that they include a home warranty. Is this a scam, or is it some kind of insurance policy? What is a home warranty, and what does it cover?

A: This is a great question, because the concept of the home warranty is often misunderstood. It’s neither a scam nor an insurance policy, and it can be a great component of a home purchase or a separate purchase as your home ages. Oftentimes, one of a home buyer’s worst fears is that they’ll sink most of their money into the purchase of the home and initial furnishings and renovations with a set plan to afford the mortgage, insurance, and small repairs—and then a major system will unexpectedly fail, causing them additional expense and debt that they can’t afford. A home warranty is essentially a safeguard against the full weight of that financial burden. It’s a service contract that covers maintenance and repair of major home systems—exactly which ones should be specified in the contract—for a set amount of time, so if there’s a problem or failure in one of the specified systems, the new owner won’t bear the full brunt of the repair or replacement cost. As you noted, sometimes sellers will include a home warranty as part of the sale, perhaps to entice a buyer to overlook an older HVAC system or plumbing fixtures that aren’t updated, but they can also be purchased by new homeowners to protect their investment while they save for upgrades.

Interested in getting a home warranty? American Home Shield is a lead provider in home warranties and covers up to 23 appliances and systems in your home, meaning that you can stay within your budget when it comes to costly repairs.

A home warranty is a service contract that covers the cost of maintaining some house systems and appliances for a certain length of time. This can include plumbing, electrical, HVAC, well pumps, or even spa parts—but to know exactly what your home warranty covers, read the fine print.

What Is a Home Warranty Service Contract

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Home warranties can provide peace of mind for home buyers (and sellers, who can move on to their next home without worrying about a system failure shortly after they move out). But buyers need to be cautious and really read the documentation that accompanies the warranty. Policies will be specific: They will indicate which systems, appliances, and other parts of the home are covered, and if an item or system isn’t on the list, it is specifically excluded. Some buyers mistakenly assume that because it’s a home warranty, it covers the entire home, which is not the case.

Another mistake is assuming that coverage of the repairs or replacements will be complete and free, which is also usually incorrect, as there is a service fee or deductible, and some limits. Home warranties are great tools, but it’s important to read them carefully and ask lots of questions.

A home warranty is not the same as homeowners insurance.

The promise of covered repairs makes home warranties sound like a form of home insurance, but they are not the same as or a replacement for homeowners insurance. Homeowners insurance covers specific losses and damages, and it almost always excludes wear and tear and replacement of home systems. Even when damages to home systems are covered, homeowners insurance deductibles are often larger than the cost of the repair, so they won’t help. Insurance is designed to cover damage resulting from fire, water, weather, and other unexpected disasters. A home warranty is a contract intended to cover maintenance, service, and failure as a result of normal use and wear and tear, and it’s a great supplement to homeowners insurance.

What Is a Home Warranty Covers Systems and Appliances

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The contract specifically states which systems and appliances are “under warranty.” Any damage that occurs to a system or appliance may also affect whether or not the cost of repair is covered by the home warranty.

If you have an issue that you think may be covered by a home warranty, your first step is to carefully reread your contract. Check to be sure that the appliance or system is covered by the warranty, and then read the conditions that apply. Certain types of damage, failure, or breakage may not be covered.

The timing and treatment of damages and failures can affect your coverage. Pre-existing problems are not usually covered, so if the previous homeowner has had the same problem repaired multiple times on the washer, that same repair won’t be covered in your new warranty. There are many ways you can accidentally invalidate your home warranty; for example, if a malfunction causes the inside of the freezer to turn into a block of ice, you can likely try to melt the ice without breaking the contract. If, however, you order a new condensing coil and try to repair the freezer yourself, home warranty companies can declare the warranty invalid. Similarly, you may be asked to prove that the system or appliance was installed or serviced by a qualified professional to receive coverage: If the previous homeowner installed tiles in the bathroom by themselves and the subfloor fails, the warranty company can deny coverage because the homeowner was not a qualified installer.

Finally, in order for a system or appliance to be covered under a home warranty, you must be able to demonstrate that proper maintenance has been carried out in a timely and appropriate fashion. A warranty may not be worthwhile if the previous owner hasn’t kept up on the maintenance, so if the last service date on the furnace was 10 years ago, the warranty may not cover it if it stops working, even if it’s listed in the contract.

A service fee for any repairs is usually incurred in addition to the annual fee for the home warranty policy.

When you call for service on a covered item, the vast majority of the cost will be covered by the home warranty—but not all. While some warranties carry a deductible, most home warranty calls incur a small service fee of $75 to $125, depending on the item being serviced and the terms of your contract.

What Is a Home Warranty Benefits

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Not everyone needs a home warranty policy, but there are benefits to getting one.

Is a home warranty always necessary? If your home is new and the maintenance has been consistent, you probably don’t have to worry about imminent system failures, and some experts recommend putting your money into an emergency fund to pay for unexpected repairs directly. That said, the peace of mind that a warranty offers, combined with a cost that is relatively low compared to what the repair and replacement would run without the warranty, can make it worthwhile even in a newer home—especially because you’ll be able to present all the maintenance documents. In an older home, a warranty is especially useful during the first year or two of homeownership, before you’ve had a chance to build up an emergency savings fund. Or if your existing home is aging, you may choose to purchase a home warranty while you save to replace a system you know is nearing the end of its lifespan. Knowing the warranty is tucked into your files can take some of the panic and sting out of the morning you wake up and discover your water heater has failed and flooded the basement or when the furnace won’t ignite on the first cold morning of the winter.

Interested in getting a home warranty? American Home Shield is a lead provider in home warranties and covers up to 23 appliances and systems in your home, meaning that you can stay within your budget when it comes to costly repairs.