Is It Worth Getting a Home Warranty?

A home warranty is a service contract designed to help homeowners manage the costs of repairing or replacing specific home systems and appliances that break down due to normal wear and tear. It functions as a financial safeguard, distinct from traditional insurance, covering routine breakdowns that occur over time. This type of contract aims to provide financial predictability for unexpected repair expenses.

Scope of Home Warranty Coverage

Home warranties typically cover major home systems and appliances, which vary by plan and provider. Common inclusions are essential systems like HVAC (heating, ventilation, and air conditioning), plumbing, and electrical, along with major appliances such as refrigerators, ovens, dishwashers, washing machines, and dryers. Some plans offer specialized coverage for systems only, appliance-only coverage, or comprehensive plans that combine both.

Despite these inclusions, home warranty contracts come with important limitations and exclusions that homeowners should understand. Most policies have dollar limits for repairs or replacements per item and total annual limits.

Exclusions often include pre-existing conditions, issues existing before coverage began. Damage from improper maintenance, misuse, or incorrect installation are not covered. They also exclude cosmetic issues, structural components like walls or foundations, and secondary damages like water damage from a leak, which would fall under homeowner’s insurance. Outdoor items like sprinkler systems or pools are excluded unless optional coverage is purchased.

Financial Aspects of Home Warranties

The financial commitment for a home warranty involves two costs: an annual or monthly premium and a service call fee. Annual premiums typically range from $350 to $700, or approximately $30 to $60 per month. More comprehensive plans generally cost more.

In addition to the premium, homeowners pay a service call fee each time a technician visits the home for a covered repair. This fee, often called a deductible, typically ranges from $75 to $150 per visit. The service fee is paid at the time of service, regardless of claim approval or repair completion. Optional add-on coverage for items like roof leaks or septic systems incurs extra annual fees. If a repair or replacement cost exceeds the coverage limit for a specific item, the homeowner is responsible for the difference.

The Home Warranty Claim Process

A home warranty claim begins when a covered system or appliance malfunctions due to normal wear and tear. The homeowner contacts the home warranty company via an online portal, mobile app, or phone to report the issue. Contract details and information about the malfunctioning item should be readily available.

The provider evaluates the claim to determine if it falls within the contract’s coverage guidelines. If approved, the company dispatches a pre-approved technician from its network. Dispatch typically occurs within 24 to 48 business hours.

The homeowner pays the service call fee directly to the technician during the visit. The technician diagnoses the problem and, if covered, proceeds with repair or replacement. If the issue is not covered, or if it is a pre-existing condition, the claim may be denied, and the homeowner remains responsible for the service fee and any repair costs.

Home Warranty vs. Homeowner’s Insurance

Home warranties and homeowner’s insurance serve distinct purposes in protecting a home. A home warranty is a service contract that specifically covers the repair or replacement of major home systems and appliances when they break down due to normal wear and tear or age. It addresses the deterioration of household components over time.

In contrast, homeowner’s insurance protects against sudden, accidental damage from perils like fires, theft, vandalism, or storms. It covers the home’s physical structure, personal belongings, and often includes liability protection. It does not cover damage from wear and tear or lack of maintenance. Unlike homeowner’s insurance, which is often mandatory for mortgage lenders, a home warranty is optional. While both involve premiums and claims, their scope of coverage differs, making them separate tools for managing home risks.