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What Does a Home Warranty Cover?
By Jessica Walrack MONEY RESEARCH COLLECTIVE
While most homeowners insure their homes, that insurance won’t help you keep your major household appliances and systems in working order. If your air conditioner goes out or your water heater starts to leak, you can quickly find yourself in hot water — literally and figuratively. Repairs and replacements are often expensive, and somehow seem to need doing at the worst possible times. So how can you curb the costs?
Enter home warranty plans.
Home warranties are designed to cover many of the big expenses that come with the regular upkeep of a home. They’re service contracts where the company agrees to repair or replace covered home appliances and systems when they break down. Instead of paying for each repair or replacement out of pocket, you pay a regular, affordable premium.
What does a home warranty cover and is it right for you? Here’s what you need to know.
Table of contents
- How home warranties work
- How a home warranty is different from a homeowners insurance policy
- How long home warranties last
- What home warranties cover
- What home warranties don’t cover
- Limits on home warranties
How do home warranties work?
First things first: what is a home warranty and how does it work? It’s important to understand that a “home warranty” isn’t actually a warranty. It’s a residential service contract between a homeowner and a home warranty service company that’s designed to help cover the costs of maintaining a home’s major systems and appliances.
Home warranties generally only cover the costs of repairs and replacements when eligible systems or appliances fail due to normal wear and use. They won’t cover incidences where a problem is caused by user negligence, misuse, improper installation, or several other causes.
If you run into a situation where a covered item stops working for a covered reason, you can call your home warranty company. The company will arrange for someone to come out and investigate the problem, which often entails a service call fee/deductible. If the issue ends up being covered, the company will determine whether a repair or replacement is best. Then it will have the problem fixed and cover the cost up to your coverage limits.
Difference between a home warranty and homeowners insurance
You may be wondering, what is homeowners insurance and how is it different from a home warranty plan? Homeowners insurance is an insurance policy that covers your home and personal belongings against loss or damage from specific causes known as perils. Covered perils often include theft, vandalism, fire, windstorms, explosions, falling objects, hail, water damage, and the weight of snow, ice, or sleet.
In short, a home warranty helps with your home’s ongoing normal maintenance costs, while homeowners insurance covers your home and belongings against losses from various, unpreventable external threats. Both types of coverage can be helpful as they offer financial protection on different fronts.
How long do home warranties last?
Most home warranty contracts last for one year from the date of the agreement. You can usually pay monthly or annually and renew your plan when the one-year contract ends.
How much does a home warranty cost?
The cost of your home warranty plan will vary depending on the coverage you need, the company you pick, and the options you choose. However, according to American Home Shield (AHS), the average monthly cost for a home warranty contract in the US is currently between $40 and $58 per month.
That said, most companies charge service call fees that work like deductibles in addition to monthly premiums. For example, AHS’s monthly premiums start at $39.99 and its service call fees range from $75 to $125 per service request. Whenever you have a problem, you’ll pay the service call fee to have someone come out.
If you want to figure out how much a home warranty will cost for your specific situation, we recommend you request free quotes from a few reputable warranty companies.
Are home warranties transferable?
Most home warranty companies allow for their service agreements to be transferred from one person to another. For example, if you plan to sell your home, you could transfer the warranty into your buyer’s name and they could take over the payments. You could also offer the policy as a gift to potential buyers to entice them into buying. But should you?
According to a recent survey, homes with American Home Shield home warranties sold an average of 11 days faster than those without them at prices that averaged about $2,300 more. So buying a home warranty could very well offer a return on investment if you plan to sell your home in the near future.
What Does a Home Warranty Cover?
Home warranty companies offer basic plans that cover a lineup of home systems and appliances. Additionally, they offer a few optional coverage types that you can add to your policy. Here’s a look at what’s often included and what’s generally considered an add-on.
Keep in mind that the covered items will vary from one home warranty company to the next. The list of covered items and exclusions may change over time. Further, companies generally specify which parts of the following systems and appliances are covered and under what circumstances. For those reasons, it’s wise to read the fine print of any proposed service contracts carefully so you don’t run into any unwelcome surprises down the road.
Covered systems
First, here’s a look at the home systems which are commonly covered under home warranty plans.
- Central air conditioning systems
- Heating systems
- Septic systems
- Electrical systems
- Internal plumbing systems
- Sump pump systems
- Ductwork
- Water heaters
- Garage door openers
- Attic and exhaust fans
- Ceiling fans
Covered appliances
Next, here are the commonly covered home appliances.
- Built-in dishwashers
- Kitchen refrigerators
- Clothes washers and dryers
- Built-in ovens
- Garbage disposals
- Ranges/cooktops
- Built-in microwaves
- Humidifiers
- Trash Compactors
Additional coverage
And, lastly, here are some add-on coverage options that you may come across.
- Freestanding freezers
- Hot tub equipment
- Pool equipment
- Freestanding ice makers
- Roof leaks
- Electronics
- Well pumps
What don’t home warranties cover?
Home warranties have a few common exclusions as well. The following situations usually won’t be covered by a home warranty contract:
- Failures covered by your homeowner’s insurance (caused by natural disasters, vandalism, water damage, etc.)
- Failures covered by a manufacturer’s warranty (or another type of warranty)
- Failures due to misuse, neglect, improper installation, or manufacturer’s defects
- Failures due to animals, pests, or pets
- Problems due to power failures or surges
- Secondary damages (i.e., damage or loss caused by the failure of a covered appliance or system)
- Appliances or systems modified by unlicensed parties
- Modifications or upgrades to equipment that aren’t repairs
- Failures caused by pre-existing conditions
- Outdoor plumbing systems such as sprinklers and outdoor faucets
- Damaged sewer lines (policies will often cover stoppages in mainline drains and sewer lines but only up to 100 feet and not if they are caused by damages to the sewer lines themselves)
- Structural items like walls, windows, and doors
Note that this is not an exhaustive list. That said, it can give you an idea of some of the most common situations that aren’t covered by a home warranty.
Limits on home warranty coverage
You’ll also encounter a variety of limits on home warranty coverage. Here are a few common examples:
- Coverage limits: Coverage caps limit how much warranty companies will pay for repairs and replacements. There are often limits for each covered system and appliance, as well as overall limits.
- Home appliances and systems: As you saw above, home warranties limit the types of home appliances and systems that are covered under the contract.
- Repairs: Contracts detail which issues are covered and which aren’t for each of the appliances and systems that are included. For example, America’s Preferred Home Warranty company covers attic and exhaust fans but doesn’t cover their shutters, belts, filters, and circulation or paddle-type fans. Only the fan motors, bearings, blades, switches, and controls will be covered.
- Claim causes: Home warranties only cover repairs and replacements that result from normal wear and tear. Most companies have a long list of causes that they won’t cover such as neglect, cosmetic defects, improper installation, floods, storms, earthquakes, and more.
- Location: Companies often require that the system or appliance be located within a certain distance from the foundation of the home.
- Appliance or system grade: Companies often limit their obligations and won’t service systems or appliances that are classified as commercial grade.
- Report date: Homeowners are often required to report problems as soon as they are discovered. If you wait and the warranty company finds out, you may forfeit coverage.
While home warranties can help you cover many of the maintenance costs that come with being a homeowner, it’s important to understand where that coverage begins and ends. Your service contract will detail all you need to know.
Bottom line on home warranty coverage
Home maintenance can become overwhelming when your expenses start to pile up. That’s where home warranty coverage aims to grant you some peace of mind. However, it’s important to understand what you’re getting to ensure that your plan ends up saving you more than it costs.
If you decide to go ahead with a home warranty, be sure to review multiple service providers, read the fine print of their service contracts, and see what past customers have to say about their experiences with the provider. With that information, you can find the best home warranty company for your specific needs in terms of costs, coverage, and service.
