What Is a Home Warranty?

By: Kealia Reynolds

When you buy a home, the last thing you want to worry about is an appliance breaking or malfunctioning. Fortunately, a home warranty prevents homeowners from paying expensive repair costs in the event that a major home appliance or system breaks down. Here’s everything you need to know about home warranties—from what they cover to how to choose the best policy.

What is a home warranty?

A home warranty is an annual service contract with a warranty company that covers certain repair and replacement costs of major home systems and appliances that fail due to normal wear and tear.

What is covered by a home warranty?

Most home warranties will cover the components of all major home systems and appliances, like your refrigerator or dishwasher. However, depending on your coverage, certain appliances may not be covered.

Here are examples of items that may or may not be covered by a home warranty:

Items generally covered by a home warranty
  • Kitchen appliances
  • HVAC units, including ductwork, AC coils, and exhaust fans
  • Electrical systems
  • Plumbing systems
  • Telephone wiring
  • Washer and dryer
  • Doorbells
Items that aren’t covered by a home warranty
  • Outdoor sprinklers
  • Pools
  • Spas or hot tubs
  • Home entertainment systems

Note that you may be able to request additional coverage for some items, like your pool, if your home warranty company allows it.

Before signing a home warranty contract, make sure you read the policy in full and understand your coverage. A home warranty may not cover repairs if there is evidence of improper maintenance, code violations, unusual wear and tear, or improper installation.

How much does a home warranty cost?

Typically, a home warranty will cost anywhere between $300–$500 per year. For more comprehensive plans or additional coverage, a home warranty plan could cost up to $600. The home warranty company may allow the homeowner to pay in installments or monthly increments, but most companies will require homeowners to pay in full after signing the contract. Occasionally, your real estate agent will pay for your home warranty as a closing gift.

In addition to an annual premium, home warranty companies will charge a service call fee, or trade service fee, every time a request is made to a service provider to come to your property and examine the issue. Typically, these fees will be less than $100

The actual cost of a home warranty will vary based on the company and the coverage you choose. Sometimes, the home warranty company will offer special discounts on policy prices or provide more coverage at a lower price, but these one-time deals are generally offered around the time you purchase a home.

How does a home warranty work?

Although different home warranty plans exist, most work in a similar fashion:

  1. If a home appliance or system breaks or malfunctions, the homeowner will call the home warranty company.
  2. The home warranty company will then call a trusted service provider in their network to address the issue.
  3. The service provider will contact the homeowner and make an appointment to inspect the broken appliance.
  4. On the day of the appointment, the service provider will arrive at the homeowner’s house and diagnose the problem.
  5. Once the home warranty company approves the repair, the homeowner pays a small trade service fee to the home warranty company for sending a contractor out to diagnose and address the problem.
  6. The contractor will then return to fix the broken system or appliance. If the issue can’t be fixed, the home warranty company may pay to replace and install a new appliance, depending on your coverage.

Is there a difference between a home warranty and homeowners insurance?

Yes. Homeowners insurance covers any structural damage to your home or personal belongings in the event of a catastrophic event like a fire or flood, but it does not cover the systems or appliances that can break down within the home.

Is a home warranty necessary?

While a home warranty isn’t mandatory, it gives homeowners some peace of mind against costly repairs and replacements for appliances and home systems. Overall, we recommend home warranties for anyone who owns a home.

Purchasing a home warranty is especially important to consider for first-time homebuyers with no experience in owning a home. Home warranty plans also make sense for people who aren’t skilled in completing home repairs or don’t have the time to track down a trusted contractor to complete a repair.

Before purchasing a home warranty, do your research and check out consumer reviews and third-party sites to get a sense of customer satisfaction, customer service ratings, BBB rating, notable home warranty features, and more. Consumer home warranty reviews tend to be subjective while third-party reviews tend to be objective, and both are helpful when making a decision.

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