Home Warranty
What Is a Home Warranty?
A home warranty is a residential service contract that covers the cost of maintaining household systems or appliances for a predetermined period of time. A home warranty is not the same as homeowners insurance, and it is not the same as a structural warranty, which is used by home builders and buyers but not for existing homes.
How a Home Warranty Works
When a home appliance or system fails, the homeowner contacts the home warranty company. The warranty company usually collaborates with one or more home service providers, such as plumbers or electricians. When a claim is received, the warranty company requests services from one of its partnered providers, who will assess the damage and provide a report to the warrantor.
What Home Warranties Cover
The assessment report reveals the extent and potential causes of the appliance's damage. The home warranty company confirms whether the policyholder's contract covers the assessed damage to the appliance or system. If the warrantor is approved, the contractor is hired to repair or replace the system.
A home warranty plan, also known as a residential service contract, is typically designed to cover major appliances such as water heaters, stoves, and refrigerators. HVAC, plumbing, and electrical systems may also be included. To understand coverages and exclusions, it is critical to read the fine print of a warranty document. While some warranties include garage door openers as part of the basic coverage plan, others may necessitate additional fees.
Although it is possible to purchase additional coverage for a home feature that is not covered by basic coverage, it is also possible that some warranty companies will not cover specific components of a home. Some home warranty companies, for example, cover outdoor pools or spas for an additional premium to the policy, whereas others may not warranty a pool on their offerings.
- Each feature or system that is scheduled for maintenance will incur a new service fee. For example, if a homeowner's oven and refrigerator are both broken, they will be charged two separate trade fees by the contractor. These expenses could range from $55 to $150.
Home Warranty vs. Home Insurance
While premiums, deductibles, claims, and liabilities are similar between home warranties and home insurance policies, they each provide different services. Home warranties ensure the continued operation of household systems that can break or wear out. Home insurance, on the other hand, protects against damage or loss to the home itself caused by fire or other natural disasters.
When purchasing a home, the buyer may not be aware of how well the previous owners maintained and managed the home's components. At the time of purchase, information on the age of household appliances or their useful life in years may not be available.
Furthermore, the homeowner may find the search for an expert handyman or service provider to be time-consuming. Homebuyers purchase home warranties for two main reasons: limited time and the high costs of paying for damage or replacing multiple components of the home.
Home Warranty Qualifications
Home warranty providers may refuse coverage for a variety of reasons. Existing known damage prior to the start of warranty coverage may result in a claim denial. As a result, if a pre-purchase home inspection reveals damage to some systems or appliances, the prospective buyer should ask the seller to repair or replace the item before finalizing the sale. A warranty company will also not cover poorly maintained, incorrectly installed, or misused household components.
A home warranty can be purchased by homebuilders, sellers, and homeowners. Some home builders provide policies that cover structural defects for up to ten years, including issues with flooring, walls, roofs, framing, sheetrock, and other items. Homebuilder warranties may also cover electrical and plumbing systems for two years and installed household appliances for six months. The cost of a homebuilder warranty policy is typically included in the purchase price of a new home.
For older homes, the seller or agent may pay for the warranty to entice a buyer to purchase the home. Existing-home warranties typically cover a year of household system and appliance maintenance. The homeowner has the option to renew the contract after a year.
Home Warranty Costs
The average cost of a home warranty basic coverage ranges from $432 to $816 per year, depending on the products and which ones are included in the policy. In addition to the annual premium, homeowners will usually pay a fee to the servicing contractor, which is commonly referred to as a "service call fee" or a "trade call fee." A contractor fee is similar to an insurance deductible. The costs of these fees are determined by a variety of factors. The fee can range from $55 to $150. Most policies include a clause stating that if the cost of a repair or replacement is less than the fee, the homeowner must pay the lesser amount.
Finally, if the cost of repair or replacement exceeds the home warranty contract limit, the homeowner is responsible for the difference. Homeowners should research home warranty companies' offerings to determine which out-of-pocket expenses they would be responsible for in the event of a claim and whether a home warranty is worthwhile.
Is a Home Warranty for My Home?
No. A home warranty, as opposed to a house warranty, covers the appliances in your home, such as a refrigerator.
Do I Have to Buy a Warranty for My Home?
Unlike homeowners insurance, you are not required to purchase a warranty for your home's appliances. However, if you buy an older home with out-of-date appliances, you should consider replacing them or purchasing a home warranty policy.
What Is a Residential Service Contract?
A residential service contract is another term for a home warranty, which protects your home's systems and appliances if they break during the warranty period.