More on Home Insurance
More on Home Insurance
A home warranty is a service contract that helps cover the cost of broken home appliances or systems, like your refrigerator, washer and dryer, and HVAC system, but should you get one?
A home warranty, or home appliance insurance, is a service contract that covers the cost of household systems and appliances if they break down because of age or normal wear and tear. When you enter into the contract, you pay monthly premiums to a warranty company, and in return you have the assurance of knowing you won’t have to pay thousands for a new dishwasher or furnace if they stop working. A home warranty is not the same thing as homeowners insurance, as the latter covers your home against certain perils like fire, windstorms, and theft, but not normal wear and tear.
Warranties are an enticing option for those living in older homes with out-of-date plumbing, electrical wiring, and heating, ventilation and air conditioning (HVAC) systems. If your home is older and in need of repairs, a home warranty is potentially worth the $300–600 annual cost. If you live in a newer or recently renovated house with updated plumbing and household systems, a warranty likely isn’t worth it.
The warranty product itself also has its drawbacks. While many appliances are covered, the contract itself is often confusing and full of coverage exclusions and limitations. Any appliances and systems that weren’t maintained properly aren’t covered if they stop working, so if your furnace breaks down because the previous owner never changed the filter, the warranty company probably wouldn’t cover its replacement or repairs. It’s also worth keeping in mind that you don’t have control over the service contractor, so there’s a chance the replacement product or repairs won’t live up to your standards.
Similar to homeowners insurance, you pay a monthly premium to your home warranty company to keep the service contract active. If a household system or appliance goes kaputt, you phone your home warranty company to file a claim. After being notified of a claim, the home warranty company sends over a service contractor to assess the damage and provide a report to the warrantor. At that point, the warranty company will determine if the cause of the appliance or system breakdown is covered by your service contract. If the claim is approved, the warrantor sends out a contractor or technician to repair or replace the appliance. Your warranty company will then bill you a fee, or deductible, usually between $60 and 120 for the service.
A basic home warranty covers most major appliances and systems in a typical home, such as your dishwasher, oven, water heater, HVAC system, and plumbing and electrical systems.
As we touched on earlier, warranty contracts also come with pages of fine print outlining system components and causes of loss that aren’t covered. The contract will also state how much you’re paid out per covered item or throughout the coverage term. Some warranty companies will limit payouts to $2,000 in aggregate per covered item, and $10,000–15,000 in the aggregate per coverage period (the start and end date of the contract). If you’re considering a home warranty, it’s important to review the document or talk through it with a warranty company representative so that you can gauge the extent of your coverage, what exactly you need coverage for, and whether or not the warranty is worth the monthly fee.
Warrantors may also offer optional add-ons that enhance the coverage in the warranty contract. One company for example, offers a premium coverage upgrade that expands coverage for water heaters in the event of sediment buildup. Another upgrade expands air-conditioning coverage to include ductless window units.
|Appliances||Systems||Other home features|
|Microwave||Air conditioning||Burglar and fire alarm systems|
|Dishwasher||Ductwork||Ceiling and exhaust fans|
|Garbage disposal||Electrical system||Central vacuum|
|Trash compactor||Permanent sump pump||Garage door opener|
|Refrigerator||Plumbing system||Re-key services|
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A home warranty generally costs between $300–$600 on average, although pricing will depend on your level of coverage and provider. If you add multiple enhancements and upgrades onto your plan, you could be looking at an annual cost as high as $1,000—about the same as the average annual cost of homeowners insurance.
Besides the cost of the plan itself, you’ll have to pay a service fee every time a technician or contract is sent to your home for assessments or repairs. Fees range from about $60 to $120, depending on the scope of the work that needs to be done.
With a home warranty, you have the comfort of knowing your home systems and appliances are protected if they stop working, and the convenience of not having to seek out a contractor or technician each time. But warranties are not always a good deal, especially if you have a newer home with systems and appliances still covered under manufacturer or builder warranties.
As we discussed earlier, if you recently bought a home and added new, spiffy appliances and a home entertainment system with a two-year warranty, you’re probably not going to need your appliances covered straight away. Some credit card companies and online retailers will even double the manufacturer's warranty, further lessening the need for warranty coverage.
You’re a first-time homeowner - Warranties are particularly valuable if you’re a first-time homeowner who may not know who to call if your air-conditioning stops working one day. With a warranty, you simply call the provider and they take care of the rest—if you’re covered, you simply pay a small fee for the repairs.
You live in an older house - A warranty might also be a good deal if you live in a house with older systems and appliances. If you’re buying an older home, the buyer’s inspection will likely include details about the age and condition of the home’s appliances. If the inspection uncovers, say, plumbing and electrical issues, it might be more worthwhile to see if the seller would be willing to cover the expenses of new systems and appliances rather than take out a warranty.
Warranties can save you time - If you’re not exactly the handy type and you’re pressed for time to find a repair person, having a home warranty saves you the trouble of comparing estimates and worrying about service contracts.
A warranty doesn’t cover every appliance and cause of loss - As we touched on earlier, warranties are quite limited in terms of what systems and appliances are covered and how they’re covered. Pools and hot tubs, for example, are generally not covered unless you add protection onto your plan. Home furnaces and heating/cooling systems are technically covered, but certain components of home systems—like filters, vents, baseboard casings, etc—are not covered.
Home warranty companies will also deny coverage for existing or pre-installed systems and appliances that haven’t been properly maintained, or in some cases, were improperly installed. This can be a big headache for homeowners, since what’s considered “properly” or “improperly” maintained is often arbitrary; even if you’ve inherited a household full of older appliances, your provider will likely refuse to honor the warranty if they weren’t maintained properly.
You don’t choose the service provider - A big drawback of warranties is you typically don’t get to choose the contractor or replacement appliance. While it might be convenient that you don’t have to hunt down the right handyman, plumber or fix-it company to make repairs, that convenience won’t be worth it if you’re dissatisfied with the service.
You might already be under manufacturer or builder warranty - Most new systems and appliances are under manufacturer’s warranty for anywhere within the first year to five years of the purchase date, depending on the cause of breakdown and what exactly broke. If you live in a newly-built home, the builder’s contract also may include a warranty period for up to 10 years for systems, plumbing, or electrical issues.
You can get equipment breakdown coverage instead - Rather than pay an extra $300–600 a year (and sometimes more) for a home warranty, you may be able to add an equipment breakdown coverage endorsement to your home insurance policy for around $25–50 annually, if such coverage is offered by your insurance provider.
The great thing about equipment breakdown coverage is that—unlike with home warranties—there are few caveats. All systems and appliances are covered against everything from improper installation to mechanical and electrical breakdown. The only cause of breakdown that isn’t covered is age and normal wear and tear, which is something that is covered under a home warranty.
Now that you’ve considered the pros and cons of home warranties, here are a few of the top home warranty companies.
Four optional add-ons
Covers up to 24 items
Monthly premium of $50–60
Two optional add-ons
Covers up to 30 items
Monthly premium of $36–44
Three optional add-ons
Covers up to 18 items
Monthly premium of $36–38
Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.