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What Is A Home Warranty And What Does It Cover?

Victoria Araj5-Minute Read

October 28, 2020

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When you purchase a home, there are several expenses you may expect: down payment, closing costs, moving expenses, etc. You typically plan and save for these expenses because you know they’re coming. But you quickly learn about all of the unexpected expenses – usually when a major appliance or essential system in your home breaks and you need to shell out a large amount of money in a short amount of time to have it repaired.

If you’re not prepared, these small emergencies can turn into big problems for your finances. And if you can’t afford to fix the issue right away, you could add further damage to your home. That’s why it’s important to protect your possessions and your finances from unforeseen circumstances – whether you’re an experienced homeowner or a first-time home buyer. Several measures can be taken to do this, one of those being the purchase of a home warranty.

What Is A Home Warranty?

A home warranty is a service contract that covers the cost of the repair or replacement of critical systems and appliances in your home. These may include your home ventilation and air conditioning system, plumbing and electrical systems, refrigerator, water heater, washer and dryer, oven and dishwasher. A home warranty is different from homeowners insurance, which covers the cost of damage to your home and other structures on your property, theft of your personal property and lawsuits or claims against your property. While homeowners insurance tends to be required by lenders, home warranties are optional.

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How Do Home Warranties Work?

Interested in getting a home warranty? Here’s how the process goes, from purchasing a plan to getting a repair or replacement.

Purchase a home warranty from a reliable company. Home warranties can be purchased at any time for any home. Sometimes the person selling a home will purchase a home warranty for the buyer as a bonus selling point. However, warranties are usually purchased by a home buyer shortly after they close or by a current homeowner.

Renew your home warranty every year. Home warranty contracts typically last 1 year, though you may find some that last up to 3 years. Once your contract expires, you’ll need to renew it or purchase a new warranty from another company.

Use your warranty for repairs or replacements of covered systems. When your system breaks down, you’ll call your warranty provider, not a repair business. Once you speak to your provider, they will call a third-party repair business they partner with and request the service for you. The repair company will then call you to schedule the service.

It’s important to know that many home warranty companies charge a service fee, which is not covered and will be an out-of-pocket cost.

What Does A Home Warranty Cover?

Just as there are different insurance plans, there are also different home warranty plans, in which costs and coverage may vary. The best home warranty for you will depend on your personal needs as a homeowner. Likewise, what your home warranty will cover will depend on the type of plan you choose.

There are typically three types of home warranties: one that covers a specific appliance, one that covers a variety of appliances and one that covers several appliances and critical systems in your home. Keep in mind, not all appliances or systems will be covered under a home warranty.

Here are the types of appliances and home systems that are usually covered in basic plans.

Home Systems

Expect these major home systems to be covered under a home warranty:

  • Plumbing
  • Electrical
  • HVAC, heating and cooling systems
  • Septic (sometimes)

Major Appliances

Here are some examples of the different kinds of appliances that can be covered under a home warranty:

  • Range and oven
  • Water heater
  • Garbage disposal
  • Ceiling fans
  • Dishwasher
  • Furnace
  • Air conditioner
  • Refrigerator (sometimes)

Add-On Coverage

There are several appliances or home fixtures that are not covered by basic plans but can be covered at an additional cost. Optional add-on coverage may be purchased for things like:

  • Washer and dryer
  • Swimming pool
  • Second refrigerator
  • Garage door openers
  • Hot tub
  • Well pump

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What’s Not Covered By A Home Warranty

Home warranty plans have their limits on what they’ll cover and how much they’ll pay. Most home warranties will only pay up to a certain amount, typically $2,000 – $3,000 per year, depending on your plan. As for what the provider may not cover, here are a few examples:

  • Windows, walls and doors
  • Sprinkler systems
  • Appliances that are already in poor condition

The warranty provider can also deny a claim on items that were covered. A few reasons your provider may give you for denying your claim are as follows:

  • The appliance was not properly installed.
  • You did not properly maintain the appliance or system.
  • There are code violations.
  • The issue is nonmechanical.
  • The part that needs service is not covered.
  • There is a preexisting condition.
  • The problem is not a result of normal wear and tear, but something else.
  • The wear and tear on the appliance or system is unusual.

Be aware, too, that some home warranties will cover an appliance, but not all of the parts included in the appliance. For example, a home warranty may cover your refrigerator, but not the ice machine that comes with it. Make sure you read the fine print of your warranty to understand what is and isn’t covered.

How Much Does A Home Warranty Cost?

The average cost for a basic home warranty plan ranges from $350 – $600 per year. However, the actual cost of a home warranty will depend on several factors, including the type of plan you purchase and whether you opt for additional appliance coverage, which can add a couple hundred dollars. Remember, you may also incur a service fee anytime you need to request a service. This usually runs $50 – $100 per request. The more service requests you have, the more you’ll pay in these additional fees. Some plans will allow you to choose the amount for your service fee, which can impact how much you pay for your plan. For example, if you agree to pay more for a service call, you may pay less monthly.

Do You Need A Home Warranty?

All appliances and home systems have a lifespan and, like it or not, there will most likely be a time when you’ll need to replace a home appliance or make an upgrade to a key system in your home. But does that mean you need a home warranty right now and for all the things? Not necessarily. Here are a few factors to consider when thinking about whether you should get a home warranty and what you should cover.

  • Your experience maintaining a home
  • Your ability to pay out of pocket for repairs and replacements
  • The plan’s fine print regarding coverage
  • The age of your appliances and home systems
  • How much you value peace of mind
  • Your commitment to properly maintaining and caring for covered appliances
  • The presence of preexisting conditions
  • Your willingness to work only with the companies that partner with your provider
  • The potential for coverage on certain items from other sources (e.g., a builder)

For many people, the peace of mind that comes with purchasing a home warranty plan is enough to justify the expense. If you’re buying a home, a home warranty plan might be exactly what you need to feel good about protecting critical parts of your purchase.

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Victoria Araj

Victoria Araj is a Section Editor for Quicken Loans and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.