Home warranties help protect your investment and your wallet. If you’re building a new home, the builder may have this covered. Otherwise, you’ll have to do the legwork to find a plan that suits your needs and your budget. Keep reading to learn more about home warranties, how they work, what they cover, and what to expect when filing a claim.
How do home warranties work?
Home warranty plans are designed to cover the repair or replacement costs of appliances and major systems in your home. You can customize them to fit your needs. However, the premiums will depend on the type of plan you choose and the covered appliances and systems.
How long does a home warranty last?
When you choose home warranty coverage, it will come with a service contract for a set period of time. In most cases, it lasts for one year. You’ll then be able to renew your plan annually to keep your coverage intact. Cancellation policies will vary depending on which home warranty company you choose to work with.
How do I submit a claim?
How you file claims will also depend on the home warranty company you choose. In most instances, you’ll need to reach out via phone or submit a ticket online to report the issue. Next, the insurer will set up an appointment for a service provider to examine the issue and make repairs.
If they cannot repair the appliance or system, they may replace it at no additional charge to you. (Note: this also varies by plan).
Depending on your home warranty contract, you may be responsible for covering a percentage of the service call cost, usually in the form of a flat service call fee (or trade call fee). The home warranty provider should list this amount in the original agreement by appliance or system and repair type.
What does a home warranty cover?
Most home warranty plans include coverage options for:
- Air conditioning systems
- Heating systems and furnaces
- Doorbells and ceiling fans
- Electrical systems
- Kitchen appliances, including built-in microwave, dishwasher, refrigerator, garbage disposal, range and over
- Hot water heaters
- Plumbing systems
- Telephone wiring
- Toilets
- Washers and dryers
Because home warranty coverage varies by plan, it’s best to check plan details to determine which systems and appliances are covered and which aren’t.
Quick note: if you have more than one of a particular appliance, like a built-in kitchen on your patio, it may be necessary to purchase supplemental coverage.
What’s not covered under a home warranty?
It depends on the home warranty plan you select. However, most plans don’t cover pre-existing issues on malfunctioning systems or appliances that weren’t installed correctly. Your claim may also be denied if the issue is related to poor maintenance.
Your home’s foundation is another example of something that’s not covered. This is considered structural and won’t fall into a covered category such as home systems and appliances. However, if your home is new construction, you may qualify for a builder’s warranty, which will likely cover any future foundation issues.
Are home warranties expensive?
On average, a home warranty costs between $300 and $600 for a year of coverage. Payments are typically due monthly or annually.
Are home warranties tax-deductible?
Although several home-related tax deductions are available, a home warranty is not one of them, at least not for your primary residence. If you use a home office or rent out a space for business purposes, you can deduct the relevant portion of a home warranty. However, you can’t deduct the entire plan if you have a home office.
The IRS generally requires you to calculate the percentage of space in your home dedicated solely as your home office. You can apply that same percentage of your home warranty cost as a business expense deduction. So if your office is 200 square feet in a 2,000 square foot home, you could deduct 10% of your home warranty.
Isn’t it cheaper to just use homeowners insurance?
Not necessarily. Insurance doesn’t cover issues related to appliances and systems from normal wear and tear. However, their coverage applies to damages sustained from natural disasters, inclement weather, fires, burglary, and theft.
Quick note: if you’re moving into a new home, the major systems and appliances may be covered under the manufacturer’s warranty. Reach out to the builder to inquire.
Are a home warranty and home insurance the same thing?
No, they are two different products. A home warranty allows for the servicing and replacing of home systems like electric, plumbing, and major appliances. In contrast, homeowners insurance protects against damage done to your home.
For example, if you have a sudden leak that floods your first floor, your home insurance policy would most likely cover the cleanup and replacement of damaged flooring. But if your dishwasher stops working, your insurance wouldn’t cover it — but a home warranty probably would.
Another significant difference is that a home warranty is elective coverage. Homeowners insurance is required if you take out a mortgage on your home. The lender won’t approve your application if you don’t have it. The fee is usually annual, but the monthly equivalent will be included in your mortgage payment and put into an escrow account by your loan servicer.
Your servicer is generally in charge of making the annual payment on your homeowners’ insurance, although you still have control over the policy and company you choose to work with. With a home warranty, you handle all aspects of the process, including making payments directly on your own.
How do I purchase a home warranty?
You’ll want to shop around to compile a list of options. Reputable home warranty companies include Choice Home Warranty and Advanced Home Warranty.
Once you’ve selected a home warranty company that suits your needs, apply for coverage, and remit payment when your application is approved. The plan will be valid for a year and can be renewed when it expires. Also, keep in mind that an inspection probably won’t be necessary to secure coverage.
Is a home warranty part of closing costs?
You can include a home warranty as part of your buyer’s closing costs if you choose to purchase one at that time. In some cases, your real estate agent may be able to help negotiate a one-year home warranty paid by the seller, particularly if some of the appliances or other covered items are on the older side.
Just know that once the one-year service contract is up, you’ll be responsible for renewing the warranty if you want to continue receiving coverage.
Can I buy a home warranty after closing?
Yes, you can get a home warranty at any point, no matter how long you’ve lived in the house. Pre-existing conditions won’t be covered, however. So the sooner you can get your home under warranty, the sooner you can use those benefits when something starts to go wrong.
Of course, if you just bought a newly constructed home or recently renovated, you may not be in such a hurry to put those new systems and appliances under warranty. So it may make sense to wait to consider a home warranty in either of those situations.
Are home warranties transferable?
If you want to sell your home and your home warranty plan is still valid, you may be able to transfer it to the new owners. And even if you don’t have a home warranty plan and are looking to sell in the near future, securing a plan may be a worthwhile purchase to make your home more attractive to potential buyers.
Tips for Evaluating a Home Warranty
Before purchasing a home warranty plan, consider the following factors to find the best fit:
- Claims process: Is the process straightforward? How much time does it take to initiate a claim, and are there representatives standing by 24/7 to assist you?
- Coverages and exclusions: Does the provider offer coverage on all the major systems and appliances in your home, or will you have to purchase supplemental or optional coverage?
- Cost of premiums and service fees: Is the monthly or annual premium similar to what you’d find from other providers? Is the service fee affordable?
- The reputation of the provider: Is the home warranty provider accredited by the Better Business Bureau? What rating did they receive, and what are customers saying about them? You can also check with your state insurance commissioner to learn more about the insurance company you’re considering. (Unfortunately, some providers are shady and charge very low premiums, only to vanish into thin air when you contact them to file a claim).
Most importantly, don’t sign without reading the fine print to confirm that the terms of the actual plan documents are identical to the quote.
Bottom Line
Coupled with routine maintenance, a home warranty can be well worth the investment and offer peace of mind. You can save yourself hundreds, if not thousands, on repairs should unexpected issues arise later on down the line.
