What Does A Home Warranty Cover?
Home ownership comes with plenty of responsibilities, including a long list of home systems and appliances that can break down and need repair. To protect from the financial shock of having to repair the plumbing system or replace a dishwasher, many homeowners choose to purchase a home warranty.
In this article, we'll explore what a home warranty is, what it covers, and what benefits home warranty coverage can provide to homeowners.
Our research team strives to provide accurate, unbiased information to our readers. After thoroughly researching home warranties, we recommend American Home Shield, which offers three levels of coverage, plus add-on options, at a reasonable price.
What Is A Home Warranty?
A home warranty is a service contract that covers major systems and appliances that you count on every day in your home. When you have a home warranty, the warranty company promises to repair or replace covered items in your home that suffer a mechanical failure due to normal wear and tear.
You pay an annual or monthly premium for the warranty, and you also pay a service fee to the contractor who comes out to inspect and repair your appliance or home system when you file a claim. The warranty company maintains a list of qualified technicians and assigns one to your case, so you don't have to worry about finding and vetting repair people on your own.
What Does A Home Warranty Cover?
Exactly what's covered by a home warranty varies depending upon the home warranty company that you use and the warranty plan you sign up for. Generally, a home warranty covers the major systems and appliances in your home. If you think about the appliances and systems you couldn't do without, you'd have a typical list of items covered by a home warranty:
- Heating system
- Air conditioning
- Electrical system
- Plumbing system
- Clothes washer
- Clothes dryer
However, different warranty companies offer a number of plan variations. Some provide policies that exclusively cover only your appliances or your home systems, for instance. Most offer a couple different levels of coverage, with the basic plan covering the most important components of your home and an upgraded plan expanding coverage to less critical but still costly items such as ceiling fans, jetted tubs, or central vacuum systems. Most warranty companies also allow you to add on coverage for less common items, such as a pool or spa, for an additional fee.
What Isn't Covered?
Like all warranties, a home warranty does have some limits and exclusions. Before you sign up for a policy, it's important to read the sample contract and to be sure you understand what is covered and what isn't.
It's common for a home warranty to exclude appliances that were improperly installed and items that haven't been well-maintained. If you're buying a house, it makes sense to get a home inspection so you know the condition of the systems and appliances before you attempt to buy a home warranty. If you can correct the issues the inspector identifies, you should be able to secure a home warranty.
Home warranty contracts also place a limit on the amount the warranty company will pay for certain kinds of repairs or replacement of specific items. For example, the average cap on replacing an air conditioner is $1,500, but consumers pay an average of more than $4,000 if they purchase a new air conditioner. In that case, the homeowner must pay the difference. Again, these limits will be covered in the sample contract, so read it closely.
When Do You Need A Home Warranty?
A home warranty is a good idea whenever you have appliances and systems that are out of the manufacturer's warranty. If your appliance breaks, you just call the home warranty company, and the repair should be taken care of. In most circumstances, you're only responsible for the service fee.
So if your air conditioner quits working, an average repair bill could be about $372. However, when you have a home warranty, you would only pay the service fee, which is generally from $75 to $125, depending upon the warranty company and plan you have.
Home warranties are especially good for:
- First-time homebuyers. People who buy their first home tend to have less experience in home repairs and don’t have a handy list of reliable service people. They may have used most of their savings to come up with the down payment, so a home warranty provides a financial cushion for home repair costs.
- Owners of older homes. The older any system or appliance is, the more likely it is to break down. Many home warranties don’t exclude appliances or systems because of age.
- Hands-off homeowners. If you’re not handy with tools and want to leave all the repair work to professionals, a home warranty is perfect for you.
- Home sellers. If your home is on the market, you’re probably reluctant to put much more money into it. With a home warranty, you can limit the amount you’ll have to pay for any unexpected repairs. Having a transferable home warranty in place, or offering to purchase a one-year home warranty for the buyer, can also make your home stand out in a crowded market. Your home may be more attractive to buyers because it gives them peace of mind to know that repairs will be covered if anything quits working after closing.
If you purchase a new construction home, the appliances and systems will be under manufacturer's warranty for a year or two. A home warranty won't cover items covered by the manufacturer's warranty, so consider buying a home warranty after the warranties the house came with expire.
Home Warranty vs. Home Insurance
Home insurance covers your home for damage that occurs in a catastrophe or natural disaster, such as a fire or hailstorm. It doesn't cover an appliance or home system that's on the fritz because it's old and starting to wear out.
In those (thankfully) rare instances where your kitchen appliances get fried by a lightning strike, you may be able to make a claim on your homeowner's insurance policy. But most of the time, when an appliance breaks, the cause is normal wear and tear. Home insurance won't help in those instances, but a home warranty will.
What Do Home Warranties Cost?
A basic home warranty plan typically costs between $350 and $600 a year. An upgraded policy or additional coverage for things like a pool or septic system will increase the annual premium.
With a home warranty, you'll also have to pay a service fee when the warranty company sends a service technician after you make a claim. The service fee goes directly to the repair person. The cost of a service fee varies by the home warranty company, and some companies charge a lower annual fee if you accept a higher service charge.
Other factors that affect the cost of a home warranty include:
- Geographic location. Residents in areas with a higher cost of living may pay more because it costs more for the warranty company to perform repairs.
- Frequency of payments. You may save money by paying your annual fee in one lump sum or by paying more than one year’s premium at a time, rather than paying each month.
Cost Benefits Of A Home Warranty
With a home warranty, you know you won't have to pay full price to repair or replace covered appliances and systems.
Here are some common items covered by a home warranty and the average cost to repair and replace them.
- Heating System: $285 (cost to repair) v. $4,249 (cost to replace)
- Air Conditioning: $347 (cost to repair) v. $5,413 (cost to replace)
- Sewer Line: $2,560 (cost to repair) v. $2,892 (cost to replace)
- Water Heater: $546 (cost to repair) v. $1,065 (cost to replace)
- Refrigerator: $310 (cost to repair) v. $1,925 (cost to replace)
- Oven/Range/Cooktop/Stove: $150 (cost to repair) v. $1,675 (cost to replace)
- Clothes Dryer: $250 (cost to repair) v. $1,075 (cost to replace)
Say you wake up one morning and find the water heater isn't working. If you paid $350 for your home warranty and $100 for the service call, you're still ahead by nearly $100 versus paying for an average water heater repair of $546 without a warranty.
If you need two or more service calls in a year for different appliances – which is entirely likely with an old house – you'd save even more.
The warranty might place a dollar limit on how much the company will pay to replace something like a refrigerator, or the company may simply agree to replace the broken item with a comparable model. For instance, if there is a $1,500 limit under your home warranty plan for air conditioning repair or replacement, then any cost over $1,500 is your responsibility. Still, that's $1,500 less you have to take out of your bank account when the air conditioner dies.
Our Recommendation For Home Warranty Protection
Based on our research of the major players in the home warranty space, we recommend American Home Shield. This provider offer a good range of coverage at a reasonable price.
The plans available from American Home Shield include the following:
- ShieldSilver™ Plan for coverage on major systems
- ShieldGold™ Plan for coverage on a combination of 23 systems and appliances
- ShieldPlatinum™ Plan for extra coverage limits on those 23 systems and appliances as well as extra features such as roof leak repairs and a free HVAC tune-up
Optional add-ons are also available, for features like septic pump, pool and spa, along with guest homes up to 750 square feet.
Below are some of the pros and cons we found for this provider:
- Long-running history and reputation
- Highly customizable plans
- Home inspection not required
- 24/7 customer service
- BBB accredited
- Covers cost of removing and disposing of appliances that have broken from everyday wear and tear
- Discounts on brand-name appliances
- Attempting to make repairs yourself can nullify coverage
- Claim fees can get higher than $100
- Comparatively short, 30-day workmanship guarantee
Choosing The Right Provider For You
We recommend comparing the options available in your area to see which provider might be best for you. To get a free quote from our top pick, use the contact information below: