What is a home warranty?

Home warranty companies offer contracts stating they’ll pay for repairs to appliances and systems in your home. Say your refrigerator stops working. If you have a home warranty, you can call the company’s customer service line, and it will send a technician to fix your refrigerator. Some warranty companies may pay for a new one (or at least part of a new one) if your appliance is unfixable.

Home warranties, of course, are not free. As the homeowner, you pay a monthly amount for the warranty, typically between $40 and $80. You will also pay a trade service fee (TSF) whenever you make a claim. The trade service fee, also called a service call fee, works a lot like a deductible. You pay the TSF, and the warranty company sends a technician to diagnose the problem and covers the repair cost up to the warranty contract limits.

You should also note that home warranties usually only cover repairs of your home systems and appliances if they’ve been properly maintained. For example, your warranty may not pay out on a malfunctioning dishwasher if the technician discovers rust on its covered components.

Home warranty vs home insurance

Home warranties don’t replace home insurance. Instead, they pay for problems most homeowners face but that home insurance doesn’t address. A homeowners insurance policy pays for damages resulting from things like fire, theft, and windstorms, but it doesn’t cover repairs if a system like your HVAC breaks down or an appliance malfunctions. These are the kind of issues that a home warranty covers.

What does a home warranty cover?

While each home warranty company has its own set of coverages depending on the plan you choose, most cover your home’s systems and appliances as long as they’ve been properly maintained. Some have different plans that cover one or the other; others may offer plans that cover both. And many offer optional add-ons for an additional charge.

In systems portion of a home warranty, you can often expect to find coverage for:

• HVACs.
• Air conditioners.
• Furnaces.
• Plumbing.
• Electrical systems.
• Water heater.
• Ductwork.

As for appliances, you can usually get coverage for your:

• Washer.
• Dryer.
• Garbage disposal.
• Refrigerator.
• Stove or oven.
• Built-in microwave.
• Dishwasher.

Some home warranties cover the following as part of a standard plan or in an add-on:

• Swimming pool pumps.
• Hot tubs.
• Ceiling fans.
• Garage door openers.

When purchasing a home warranty, you should review what each plan offers to make certain that your areas of concern are covered.

When do homeowners need a home warranty?

You need to have a home warranty prior to having a problem with a system or appliance for the coverage to kick in. So if your garbage disposal is broken at the time you purchase a home warranty, the company won’t pay to repair or replace it. In fact, most home warranty companies have at least a 30-day waiting period before you can make a claim.

People typically buy a home warranty plan when they buy a house. This covers them for any unforeseen problems with systems and appliances once they move in.

Is a home warranty worth it?

Whether or not a home warranty is worth it depends on your situation. For example, you may want a home warranty if:

• You have limited savings for repairs.
• You don’t want to make repairs on your own.
• You don’t want the hassle of hiring a contractor.
• You have expensive appliances.
• The person buying your home has doubts about the condition of your home’s systems.

That said, the requirement that your systems and appliances must be properly maintained has been a perennial sticking point for many homeowners. This may be the result of a home warranty company being less than honest, but it can also be a simple matter of a homeowner disagreeing with their company’s definition of property maintained.

Either way, you may want to consider putting the money you would have spent on a home warranty into a savings account earmarked for repairs. While you won’t have the luxury of someone else taking care of your problem, you will have cash on hand for emergencies.