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The Basics of Home Warranties: Protecting Your Appliances

Homeownership requires general maintenance around your house and attention to the appliances and systems inside. Home warranties provide a financial buffer in case any essential home features, perhaps your refrigerator or central heating system, break down or malfunction. While home warranties sometimes make due on their promise, they only pay off under predetermined circumstances. Read on to see if a home warranty is right for you and your property.

What Is a Home Warranty? 

A home warranty is an annual contract that helps temper any out-of-pocket costs incurred from a major appliance or system malfunction. These contracts would cover most aftermarket additions to your home, including HVAC and electrical systems, as well as significant appliances like your refrigerator, water heater, and dishwasher.

You can purchase a home warranty at any time, no matter the age or condition of your house. Home warranty coverage will match whatever you specifically name in your contract. Some home warranties cover home systems, others only cover appliances, while more comprehensive contracts cover both.  

What Does a Home Warranty Cover? 

Home warranties cover your home systems, appliances, or a combination of both. Home systems classically covered by home warranties include:

  • Electrical
  • Ductwork
  • Heating
  • Interior plumbing
  • Water heater

However, home warranties will not replace anything damaged from the following:

  • Preexisting issues with your systems and appliances
  • Improper installation and misuse
  • Home system or appliance still under manufacturer’s warranty
  • Cosmetic defects
  • Pest damage
  • New equipment that’s been modified or changed
  • Secondary damage (e.g., floor damage from a leaky refrigerator)

Some of these excluded charges might already be covered through your homeowners insurance plan. Generally, home warranty insurance will only cover losses from old age, wear and tear, or malfunction.

What Home Appliances Will Be Covered? 

Appliances typically covered under a home warranty include:

  • Air conditioning (when applicable)
  • Dishwasher
  • Garage door opener
  • Oven, range, or cooktop
  • Garbage disposal
  • Refrigerator (may exclude ice maker)
  • Spa equipment (when applicable)
  • Built-in microwave

Home warranties cover appliances in satisfactory condition upon occupancy that break down from natural causes, not user error. If the former homeowner recently purchased these appliances, you should check in with their manufacturer about any preexisting warranty before taking out unnecessary coverage through a home warranty.

Home warranties typically cover only a limited amount of each item listed above. For example, you may not receive full warranty coverage if your house has five refrigerators.

The Benefits of a Home Warranty

Fixing crucial home systems like central air or heat can cost thousands of dollars. Home warranties give homeowners peace of mind knowing that everyday appliances and systems will be covered without too much out-of-pocket expense on your end. Home warranties also benefit first-time homeowners with little repair experience and only a limited amount of cash on hand.

Sometimes, the house seller will even offer to purchase the home warranty for you to incentivize a speedy transaction. When this occurs, you get all the benefits of a home warranty without having to foot the bill. 

The Drawbacks of Home Warranties 

Home warranties come with quite a few drawbacks as well. Only some items in your home get covered under a home warranty, and they typically reimburse you only up to a specified limit. Any costs beyond the stated limit become your financial responsibility.

In addition, premium costs can be expensive. If you pay your home warranty for years and never have to file a claim, this could feel like money wasted. On top of this monthly premium, you must also pay a mandatory service fee with every registered claim.

How Does a Home Warranty Work? 

If anything in your home covered by a home warranty breaks, follow these steps to ensure quick service to your home:

  1. File a service request claim: Get in touch with your home warranty company and alert them of the broken appliance and its manufacturer.
  2. Schedule an appointment: Your home warranty company will find a third-party contractor in their network to come by and assess the damage.
  3. Repair or replace the item: Your warranty company might ask you to provide evidence of proper maintenance on the item in question before paying the repair or replacement costs. 
  4. Pay your service fee: Every time you file a claim, you must pay a small fee, similar to a co-pay.  

What Does a Home Warranty Cost? 

Home warranties can put a dent in your finances, averaging around $550 per year. Warranty contracts get priced by the amount of coverage you choose, and the annual cost can vary widely between hundreds of dollars. For example, a policy that includes HVAC or swimming pool coverage can push $1000 per year.

Some companies offer discounts for people who pay an entire year upfront instead of monthly installments. Every claim you make costs you a service fee, typically between $60 to $125 per claim. Certain home warranties charge more for the service fees and less for the annual plan, which could benefit you if you expect no significant breakdowns in the years to come.

Is Every Home Appliance and System Breakdown Covered?

Home warranties will not cover every home system and appliance breakdown. Your home warranty would only protect your pool or hot tub if you already purchased optional coverage add-ons with your contract. Home cooling and heating systems typically see coverage, but parts like filters and vents might not. 

Home warranty providers may deny claims for items they feel were not adequately maintained, which can often feel murky when trying to prove. Warranty companies will not offer to replace antique or specialty items and, in general, only bring in the cheapest possible replacement models for covered appliances.

What’s the Difference Between a Home Warranty and Home Insurance 

While homeowners insurance and home warranties both cover damages inside and outside your household, they serve different purposes. Homeowners insurance reimburses you for covered perils listed in your policy documents, which often include losses from falling trees, fires, hail, theft, or vandalism. Homeowners insurance policies will not reimburse you for damages to home systems and appliances like your refrigerator, dishwasher, plumbing, or HVAC system. Wear-and-tear malfunctions of this sort typically fall on the homeowner.

A home warranty would focus on the dilapidation of major appliances and home systems. Mortgage lenders require you to take out a home insurance plan when buying your house, while home warranties are optional. A home warranty could make sense if your home has many old systems and appliances, though they do not always pay off.

Where Can I Buy a Home Warranty? 

While you can buy a home warranty at any time, they typically get purchased at the same time as your house. After determining your coverage needs, contact some reputable home warranty companies for quotes. You’ll need to put in more legwork than just a standard online search, as not all home warranty companies have your best interest in mind. 

Talk to your friends or neighbors for advice. If you have or know a realtor, you can also ask them for some direction. Realtors tend to have established relationships with home warranty companies and can point you toward one they know will take care of you and honestly pay back claims.

What to Look for in a Home Warranty 

Read the fine print before signing any home warranty contract. Look over the company’s service agreements that state what items they’ll cover and under which conditions. Determine your coverage’s limits and exclusions and factor in the price of your plan. Lastly, ensure your home warranty company contracts insured and licensed technicians for any necessary repairs.

In summary, look for an affordable plan with wide-ranging coverages without too many stipulations in the fine print. Make sure you’ll receive timely professional work following any claim you make and that your replacement products live up to the standard of their precursors.

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