Homeowners, especially those that have just purchased and moved into a new home, are often worried about the condition of home systems and appliances, and the hefty repair bill that comes with any issues to these home components. While homeowners insurance covers damage caused by fire, flood, and other catastrophic events, it doesn’t typically cover repair or replacement costs associated with heating, ventilation, and air conditioning (HVAC), plumbing, electrical systems, or other home components. Not to be confused with home warranty guarantees—offered by some home inspection companies to guarantee their work—a home warranty provides coverage for failing home systems and appliances. If you’re a new homeowner, or a homeowner who has dealt with expensive home system repairs in the past and want to minimize your liability going forward, you’re likely wondering if a home warranty is the right option for you. While a home warranty does cover the bulk of repair and replacement costs for malfunctioning home systems, there are some limitations that you should be aware of prior to purchasing a warranty.
A home warranty discounts the cost of repair or replacement of major home components.
Just as with homeowners insurance, you pay either a monthly or annual premium to the home warranty company to cover systems and appliances. Home warranties cost around $500 per year, but this can vary. The greater the coverage, the greater the price. Typically, home warranties cover major systems, such as hot water heaters, plumbing, HVAC systems or furnaces. In most cases, you can purchase additional coverage for appliances, including the dishwasher, oven, refrigerator, washing machines, and more. Home warranty coverage is triggered when an insured system or appliance breaks down. The home warranty company will require an assessment of the system to verify that it no longer works and to determine the cause of the problem. If the system meets the coverage criteria, a service provider sent by the warranty company will repair or replace the system. You will be charged a service fee, but the warranty company will pay the remaining cost of the system repair or replacement, as guaranteed by the policy.Home warranties are an attractive option for some, especially those who don’t want to shop around for contractors. Because the warranty company will send a repair service of their choosing, you don’t have to worry about fixing anything on your own or searching for the right repair company. The repair process is mostly handled for you.
However, the service fee, which is sometimes called the “trade call fee,” can become expensive if multiple repairmen are sent to your home.
Depending on the nature of your failing system, multiple contractors may need to respond to your home—if this is the case, you’ll be required to pay the service fee each time a contractor is sent out. The service fee ranges in price, from around $75 to $125 depending on the company, so it’s hard to determine the exact cost that you potentially face. But seeing as the warranty company will not cover the service fee, you’ll pay the charge regardless of how much it costs, and regardless of how many service people are sent to your home.
Pay close attention to the specific home systems that are covered under the warranty.
You have to be especially wary about what the warranty coverage entails. It may be that none of your appliances (dishwasher, stove, laundry machines, etc.) are covered. Or, most appliances may be covered, but your furnace is not. If you purchase a policy, you’ll want to ensure that you have coverage for those items that are most likely to fail. A claim might also be denied because the home warranty company determined that a system failed due to lack of proper maintenance. This is certainly a gray area that can be left up to subjective judgement. If your claim is denied due to lack of maintenance, you’ll be left to pay both the repair cost of the broken system and the service fee, as the warranty company will have sent out a contractor to assess the cause of the problem. As discussed, home warranty companies handle the repair and replacement process, and some policyholders find that this offers peace of mind. But others disagree with the chosen service provider or the repair method. For example, you might want a broken home system to be fully replaced, but the home warranty company is only willing to repair it. Or, you may dislike the chosen replacement model or repair company, but the warranty company has the final say. If you do disagree about anything, you have no recourse unless you wish to bear the replacement costs yourself.
You should buy a home warranty if…
You have no desire to be involved in the repair or replacement process and you agree with the coverage terms. Your biggest concern is peace of mind, and you aren’t concerned with how your broken home system is fixed. The home warranty provider will have the final say on who is contracted to perform the service and if the system should be repaired or replaced, absolving you of any of these responsibilities. You understand and agree to the coverage terms, and feel comfortable that you’re making the right decision.
You should not buy a home warranty if…
You want a say in how the system repair is completed or if you don’t agree with the coverage terms. Home warranty companies make the final repair decision based on their own assessment. Those that are more inclined to seek out their own repair specialist will find home warranties limiting. Of course, if the coverage terms are unsatisfactory, you should either go to a different warranty company or decide against coverage altogether. The subjective maintenance clause can also be an issue, especially if you think you’ll end up paying for insurance that will simply be denied when you make a claim. It’s clear that home warranties can be a hedge against the thousands of dollars you’re on the hook for if a major home system repair is required. But they aren’t ideal for everyone, as some might deem the annual cost and limiting stipulations not worth it. If you are considering a home warranty, research to find reputable warranty companies, and be sure to understand coverage terms before you agree.