How Does a Home Warranty Work?
A home warranty provides coverage for service, repair, or replacement of your major home systems and appliances. It serves as a financial buffer in case one of your expensive items malfunctions, and it can extend the protection provided by manufacturers’ warranties after they expire.
With a home warranty, you don’t have to search for individual contractors as the warranty company connects you with its affiliated contractors, simplifying the process. Additionally, some home warranties offer an allowance to help cover the cost of replacement items.
What Is a Home Warranty?
A home warranty mitigates the risk of major out-of-pocket expenses in case of appliance or system failure. It differs from homeowners insurance, which covers property damage from perils like fire or theft. Unlike homeowners insurance, a home warranty specifically covers appliances and systems not protected by insurance or manufacturer’s warranties.
Home Warranty Protection Program
A home warranty is part of an overall protection program for your home. When an issue arises with a covered appliance or system, you can submit a service request to the warranty company. They will then dispatch a contractor to diagnose, repair, and potentially replace the item. A service fee, typically ranging from $60 to $150, is required for each claim.
Depending on the warranty company, they may choose to replace the item with a comparable alternative or provide a cash settlement based on their charge limits.
What Does a Home Warranty Cover?
A home warranty covers the service, repair, or replacement of major appliances and systems. The coverage is specific to what is named in the contract, and there may be exclusions that are the responsibility of the consumer.
Cover
Typical home warranties cover systems such as electrical, ductwork, heating, interior plumbing, and water heaters. Appliances commonly covered by home warranties include air conditioning (optional), dishwasher, garage door opener, garbage disposal, oven/range/cooktop, and refrigerator (optional, excluding ice maker). Additional optional coverage can be purchased for items like sump pumps, well pumps, or septic tanks.
What Don’t Home Warranties Cover?
While home warranties provide coverage for a wide range of items, there are certain exclusions to be aware of. Home warranties typically do not cover preexisting conditions, improper installation or misuse, appliances or systems that are still under a manufacturer’s surety, cosmetic defects, pest damage, modified or changed equipment, and secondary damages caused by covered items. It is worth noting that some of these exclusions might be covered under home insurance policies.
How Long Does a Home Warranty Last?
A typical home warranty lasts for one year with the option to renew. However, some warranty companies offer plans ranging from one to three years. It is recommended to review your home warranty coverage annually to ensure it meets your current needs. As the manufacturer’s attestation for appliances expires or as systems near the end of their lifespan, adjusting your home warranties coverage accordingly is essential.
What Should I Look for in a Home Warranty Company?
When selecting a home warranty company, consider the following points to help you find the right features and coverage for your needs:
- Inventory: Make a list of your appliances and systems, considering their age, condition, service history, and any preexisting conditions that may affect coverage.
- Home Inspection: Consider a home warranty that requires a home inspection to identify preexisting conditions and avoid surprises regarding coverage.
- Coverage and Payment: Assess the cost of repairing or replacing appliances and systems on your own. Determine what you can afford and whether the home warranty’s coverage aligns with your needs. Keep in mind that home warranties may not cover the entire cost, and many companies have charge limits.
- Company Accreditations: Choose a home insurance company with a claims office in your area and review their accreditations. Look for compliance with state regulations, a 24/7 call center, and positive reviews from reliable sources like the Better Business Bureau.
How Much Do Home Warranties Cost?
The average cost of a one-year home warranty ranges from $400 to $550, although prices may vary. It is essential to carefully read the terms and conditions to understand exclusions, service fees, and charge limits. Home warranties offer different levels of coverage, so the price will depend on the plan you choose. Additionally, some companies offer discounts if you pay for the entire year upfront or provide a bonus month for paying in full.
Are Home Warranties Tax Deductible?
Home warranties for primary residences are not tax deductible on federal returns, similar to homeowners insurance. However, if you have a home office, you can deduct a portion of the home assurance expenses. Rental properties, on the other hand, qualify for a deduction on home warranty costs.
Who Shouldn’t Get a Home Warranty?
If your appliances still have active manufacturers’ warranties, you don’t need home insurance for those items. Additionally, if you know that your appliances are malfunctioning, improperly installed, violating codes, or lacking proper maintenance, a home warranty won’t cover repairs for those items.
Ultimately, those who want financial protection against unexpected malfunctions after manufacturers’ warranties expire can benefit from a home warranty, as long as they use appliances and systems properly and experience normal wear and tear.