What is a Home Warranty and is it Worth the Money?

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Home warranties protect your home from more common incidences, such as appliance malfunction These policies are not required by lenders and are therefore not as well-known as homeowners insurance, which is required by most mortgage lenders and protects the property in the case of a fire, theft or other disaster.

Most homeowners likely won't need a home warranty policy that covers repairs and replacements on specific appliances and certain home systems, as the costs of repairs typically outweigh the benefits of this policy. We cover the types of home warranties available on the market, what they typically cover and what they don't.

What is a home warranty?

A homeowners warranty (or home warranty) protects specific systems and appliances in your home by covering the costs of repairs or replacements. Home warranty providers offer monthly plans with different tiers of coverage at various prices.

In most cases, the homeowner is responsible for paying the monthly subscription price plus what’s called a “trade call fee” (generally $75 to $100) which pays for a service provider to come to your home to make an estimate when you submit a claim. That cost is paid by you out-of-pocket, and isn’t reimbursed by your warranty provider.

As it’s advertised to work, when something breaks in your home that’s covered by the policy, all you have to do is call it in to the company and pay the service fee and the repair and parts will be covered.

A home warranty is not the same as homeowner's or renter’s insurance; these policies generally cover disasters, such as fire, theft or rain/hail damage to the home. For the most part, homeowners insurance doesn’t cover the repair or replacement of appliances.

What does a homeowners warranty cover?

The majority of home warranties cover the repair of regular home appliances and systems, such as washers, dryers, ovens, refrigerators and systems like plumbing, central heating and cooling and electrical. As the policy owner, you often have the option to choose your tier of coverage plus any additional items or systems, such as electronics, pools or spas, or even guest houses.

Typical home warranty coverage is restricted and only covers normal wear and tear damage to covered appliances and systems. Say your dog chews up the connections on your refrigerator — a typical home warranty wouldn’t cover the repairs, but worn parts that malfunction due to overuse and the normal passage of time would likely be covered.

What isn't covered under a homeowners warranty

For the most part, a home warranty will only cover damage from normal wear and tear. That means if a repair tech estimates the issue was caused by you or another occupant in the home, the repair may not be covered by your warranty.

Damage outside of normal wear and tear

Here’s how American Home Shield, a popular home warranty company, explains it on their website:

“If a hose on your dishwasher breaks due to normal wear and tear, we would cover it. But, if a child stands on the dishwasher and breaks the door, we would not cover it because the damage was not from normal wear and tear, in addition to other exclusions and limitations that may apply.”

As the exact specifications of what “normal wear and tear” includes isn’t available from most home warranty companies, you’ll want to check when reviewing your contract or speaking with a representative to see if they can give you any concrete guidance of what to expect.

In some cases, even if the damage was not caused by you, the home warranty company will want you to prove you properly maintained the equipment before they pay for the repair; with that, you’ll want to know what type of proof you’re expected to provide.

With unclear specifications that rely on a repair tech’s estimate, you may find yourself paying out-of-pocket for repairs you assumed would be covered by your warranty.

Appliances and systems not specified in the contract

Before you commit to a contract, you’ll want to review what specific items are covered. It’s not always clear at first glance what’s included and what’s not. For example, if you opt for pool coverage with American Home Shield, the pump motor and pipes are protected, but the jets, liners, lights and more aren’t included in the coverage.

Unfortunately, most companies that offer home warranties don’t have transparent websites where you can find this information ahead of time; for the most part, you’ll have to request a quote and review the actual contract to find out exactly what is covered and what isn’t.

Is it worth having a home warranty

The answer to this question really depends on your money habits. If you’re someone who sets money aside each month for a savings goal and then — this part is key — doesn’t withdraw from the account except to use the money for the intended purpose, you probably won’t benefit from a home warranty. Also, if your home or appliances are still covered by a manufacturer's warranty, you should consider whether you really need to add additional coverage.

Another instance is during the negotiation process for a home purchase; you could request a year of coverage to help guarantee against any issues after you move into the home. However, it’s important to note that your claims may not be processed if the repair tech finds the problem stems from improper maintenance (which could be from before you lived in the home).

When a home warranty does make sense

If you aren’t the type of person who regularly sets money aside for contingencies, you may find the peace-of-mind of a home warranty worth it, even despite all the drawbacks. In a perfect scenario, your monthly subscription fee — usually any from $40 to $50 a month — would cover any damages or repairs to your appliances and systems, which could potentially costs thousands, and all you’d be responsible for is the service fee, as mentioned.

What types of home warranty plans are there?

Generally speaking, there are two main categories of home warranties out there: traditional home warranty plans and home builder warranties. These differ in terms of the type of coverage they cover ranging from appliances and systems to the workmanship that went into your home.

Traditional warranties

Most home warranty companies offer a variety of plans, such as appliances only, systems only, combination plans or “build your own.” Appliance plans usually cover refrigerators, ovens and ranges, washers and dryers, dishwashers, trash compactors, garage door openers and more. Systems usually include electrical, plumbing, heating systems, water heaters and more. With a la carte or build your own plans, you can add coverage to non-typical items like pools, spas, guesthouses and more.

Home builder warranties

Newly built homes often come with home builder warranties that cover workmanship, materials and home systems, including plumbing, electrical, windows, drywall and more. While the period of coverage varies, typically you can expect two years for HVAC and plumbing, one year for drywall, stucco and siding, and possibly up to 10 years for major structural defects. For those buying a new home construction with a FHA or VA loan, the builder must have a third-party warranty to protect the home.

How to get the most out of your home warranty

When reviewing your home warranty contract, you’ll want to know the fine print for what your policy covers (and what it does not). When anything breaks in your home, it’s best to check your coverage before filing a claim, so that you can avoid an unnecessary trade call fee. Along with that, you’ll want to keep records of any repairs or maintenance you make on the home in case you have to prove to the provider the issue was related to normal wear and tear, and didn’t stem from a lack of maintenance.

In the past, some home warranty providers have shown a record of making it difficult to impossible for home owners to realize the benefits of their warranties. Before you sign a contract, check with the Better Business Bureau for complaints, as well as your state’s division of consumer affairs if available. While you’re at it, read the company’s Google and Yelp reviews, but bear in mind those reviews may have been paid for or doctored by the company.

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