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What is a home warranty and how does it work?

You’ve finally found your perfect home! Now it's time to look for the best way to protect your new asset. A home warranty is an optional form of coverage for household items in the form of a yearly contract that helps fix and cover the varying cost of home repairs from small fixes to full renovations. Different packages are available so you can choose the right amount of coverage for your home.

What does a home warranty cover?

The most common home warranties cover damages to kitchen appliances, plumbing and heating systems. Some warranties will cover things found outside of the home, like backyard appliances including pool heaters and other large-scale equipment. Although the warrantee can save you a lot on the actual repair, there’s often a copay and other charges surrounding your home warranty company’s services, along with your yearly premium.

How does a home warranty work?

A home warranty works a lot like an extended product warranty, but one that applies to multiple products at once. Once you choose your home warranty policy and coverage, you’ll receive a breakdown of what your new policy will cover. You’ll typically pay a yearly premium and, if a covered item breaks, you can contact your home warranty company to request a repair. They will assist you in getting the covered item fixed.

Keep in mind that the yearly premium is not the only cost you’ll pay. Companies often charge copays for repairs, fees for phone calls and other services they provide. Make sure you’re clear on potential charges when you sign up for a policy.

Remember, home warranties are different from homeowners insurance. Homeowners insurance protects the house structure itself in the event of a big storm or accident, for example, while home warranties cover wear and tear of things like major appliances, electric and HVAC systems.

How much is a home warranty, and who typically pays?

Like we mentioned above, a home warranty is a yearly premium that varies based on your total coverage. It can be anywhere from a couple hundred dollars to several thousand. It can be paid by you, the homeowner, or the seller may cover this cost as part of an incentive to buy their home. Keep in mind that the yearly premium is not the only cost you’ll pay. Companies often charge copays for repairs, fees for phone calls and other services they provide. Make sure you’re clear on potential charges when you sign up for a policy. It’s worth noting that some repairs, even if covered under your insurance, could be rejected if your home warranty company determines that the household item was not properly maintained.

Should I get a home warranty?

If you’re moving into a newly built home, a home warranty isn’t usually necessary. The appliances are all new, so there’s less of chance that they’ll break. In addition, newly built houses often have a warranty under the builder or appliance manufacturers for a couple of years. But if you’re living in an older home, or a house inspection reported issues with certain appliances, getting a home warranty may be worth it for you. Replacing household systems related to plumbing or heating, for example, can be extremely costly. A home warranty is likely to save you money, and maybe even pay for itself, in this instance.

The pros and cons of having a home warranty

Pros

  • Can save you money on repairs
  • Provides a feeling of security
  • Conveniently takes care of services and repairs

Cons

  • Sometimes unpredictable repair copays and service charges
  • Claims may be denied
  • Doesn’t always have control over replacement materials

The verdict

Getting a home warranty is likely worthwhile from both a monetary and technical standpoint, if you think you’re going to have major repairs or replacements coming your way. As always, make sure to do your research before choosing a company and plan that’s right for your home’s needs.