Buying and subsequently maintaining a home can be an extremely stressful event in your life, and it's understandable that you may be looking for a way to make it a less risky endeavor.
In addition to homeowner's insurance, perhaps you've also heard of a home warranty. You may have even been offered one while purchasing your new home. But before you decide whether or not to sign up for one, you should know not just what a home warranty is, but what its positives and negatives are, and whether it is the right way for you to keep your house safe.
So, what exactly is a home warranty?
What Is a Home Warranty?
A home warranty is a contract agreement wherein a company provides repairs and replacements of various home appliances and maintenance. If you make your yearly payments on the home warranty (whether on a yearly basis or if you can negotiate a different payment plan), the idea is that you can get peace of mind that certain home repairs are covered.
A home warranty could, in a sense, be seen as a complement to homeowner's insurance that fills in some of the blanks. Homeowner's insurance can help protect you in the case of disaster, like a hurricane or a fire. A home warranty, on the other hand, is supposed to help protect you from some of the wear and tear that comes with owning a home.
Of course, this doesn't mean that a home warranty is inherently a good idea. Home warranties don't cover everything that the phrase "home appliances" implies it might. So if you're in the market for one or just mulling your options, it is incumbent on you to look into the coverage of a given plan and provider, and how it relates to the specifics of the home you are buying.
What Can a Home Warranty Cover?
A home warranty can cover a variety (though not all) of repairs of home systems and appliances. Some of these may include:
- Air conditioning
- Ceiling fans
- Central heating
- Duct work
- Electrical wiring
- Garbage disposal
- Microwave oven (built-in)
- Refrigerator and, if included, ice maker
- Smoke detector
- Stoves, oven and cooktops
- Swimming pool
- Telephone wiring
- Trash compactor
- Washer and dryer
- Water heater
But again, not every home warranty will cover each of these repairs. And some of the more elective ones, like swimming pools, may mean your warranty will cost extra to cover it.
How Does a Home Warranty Work?
Getting a home warranty means signing a contract (often for a year) with a warranty provider who works with other services providers, usually the companies who will actually make the repairs and replacements your home warranty covers.
Should one of your covered home systems or appliances need a repair, you will first need to make a claim with the home warranty company. Often that involves calling the provider, but at this point your average home warranty provider likely offers online claims as well.
Once you, the homeowner, have filed your claim, the home warranty provider will reach out to one of their approved service providers about the problem. That service provider should then work with you to schedule an appointment for one of their specialists to come to your house and examine the problem.
This specialist or technician will visit the house and assess the repair before determining if you are, in fact, covered for them to fix the problem. This involves a number of factors - the scope of the repair, the manner in which it was broken or worn down, whether it is up to code, etc. If they determine that it is covered, they will go to work fixing it. You will likely owe a service fee to the service provider.
It is possible that your claim won't get approved after the service provider's assessment. Some home warranty companies find ways to avoid paying for repairs by having clauses in the agreement that void them of the responsibility of paying for the damage. This can include:
- Code violations
- Improper installation or maintenance
- Pre-existing conditions
- Wear and tear deemed "unusual"
If your claim gets denied for one of these reasons, you may believe this was done unfairly. If this is the case, you can call your home warranty provider, making sure to retain all the information given on the call, and request an appeal for your claim. You may want to reach out to a third-party service provider for a second opinion on the damage to see if they present you with other findings.
Your appeal may also end up getting denied. If this is the case, make sure you've taken the steps to get as clear a picture of your repair situation (which is why you may want a third party to take a look at it). If you feel completely sure that your claim was denied unfairly and should be covered, another option is to contact the Better Business Bureau (BBB) and file a complaint. Though it is far from a guarantee, some home warranty companies may be more inclined to resolve the problem so as to maintain their rating with the BBB. This, however, is generally seen as one of the last resorts one should do, and only if it is very clear you have been unfairly denied.
How Much Does a Home Warranty Cost?
Home warranty costs vary from company to company, as well as based on what your plan will cover. Depending on the company, your price may also be dependent on the state that you live in.
Generally, the less that is covered on your home warranty, the less expensive it will be. As more appliances get added into the coverage, as plumbing and electrical systems get added in, and as far more optional items like swimming pools and well pumps get added in, it becomes quite a bit pricier.
For example, the home warranty company Complete Protection has four plans ranging from the Essential plan for $45 a month ($540 a year) to the Ultimate plan for $75 a month ($900 a year). While the Essential plan covers things like air conditioning and furnace, the Ultimate includes things like electrical wiring and pipe leaks - and is significantly more expensive as a result. That doesn't even include optional items they allow to be added onto the plan such as a garbage disposal ($4 a month) and a septic tank and lateral lines ($20 a month).
Pricing can also vary by state. Home Warranty of America, for example, offers their Gold plan to Oregon residents for $370, but it is $450 in New Jersey while differing in services covered.
None of these examples should be taken as recommendations for home warranty services, merely as examples of how much variance there can be in plans. Do the proper research on what the most reliable companies are for providing home warranties, and seek out quotes from them accordingly.
Pros and Cons of a Home Warranty
Some homeowners have a need for a home warranty, while others don't find them necessary at all. Do the positives outweigh the drawbacks or vice versa?
The biggest selling point granted to home warranties is often the intangible element that it provides a peace of mind. Wear and tear on your home is expected and understood, but that doesn't make it any less stressful when you inevitably have to get something fixed. With a home warranty, you can feel more comfortable knowing it can be covered provided you make your monthly payments and service fees.
It also, as mentioned, fills in the blanks that homeowner's insurance has. Home insurance certainly gives you more peace of mind for if disaster strikes, but it's more likely that you'll have to deal with just general wear-down of household appliances than disastrous circumstances. A home warranty can be there for the more mundane (but still expensive) requirements of owning a home.
If this isn't your first home, you may be more well-versed in how to handle the situation, if not how to actually fix the appliances depending on what repairs are needed. But a first-time homeowner may feel overwhelmed at the idea of handling home maintenance, and may feel more comfortable finding a dependable home warranty service.
In addition, people selling their home may benefit from a home warranty as well. It can keep their costs down while selling in the case of necessary repairs, and hopefully facilitate a quick repair that keeps the process of selling the house on track.
No matter how many added appliances you put onto a home warranty, they can still be very restrictive. "Unusual" wear and tear can be an ever-growing umbrella of circumstances that a home warranty company can easily use to justify not covering your claim. Sudden freak accidents can be inevitable, and can exist in a gray area of fault. If a provider takes that as an excuse to reject your claim, you can be out thousands of dollars, which is only compounded by the stress that comes with trying to appeal your claim.
Because home warranties are not required, you are actively choosing to take an expense on for at least a year. Even for someone who can afford to put money down on a house, hundreds of dollars a year is a lot of money. If you get a home warranty with a newer house that doesn't end up requiring any fixes, that's money you aren't getting back.
Home warranties have many similarities to insurance policies. One such similarity is that it has a premium (monthly payment) and a deductible (amount you pay out of pocket before the policy kicks in). These aren't always risks, but they're something to be aware of, since one number going up tends to mean the other number going down. You may be looking for lower premiums on a warranty, but remember that will come with a larger deductible.
Should You Get a Home Warranty?
If you do your due diligence with research and look into home warranty companies with trustworthy reputations that are offering coverage and premiums to your liking, a home warranty may be a good decision for you and your house. But it can also be very risky, and there is rarely if ever a full guarantee that you will get your claim approved for a repair. At the end of the day, it will all depend on the unique circumstances of your situation - your income, how old your home is, how much different services cost per year, how many different appliances you want covered, how reliable the home warranty companies in your area are, and much more.
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