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Kailey Hagen has been writing about small businesses and finance for almost 10 years, with her work appearing on USA Today, CNN Money, Fox Business, and MSN Money. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.
Home insurance protects the policyholder's home and personal property against common disasters, like fires and storms, but it has plenty of gaps in its coverage. Home warranty plans attempt to fill some of these gaps, but they have some complex rules that homeowners need to be aware of. Here's a closer look at a home warranty vs. home insurance.
Home warranty plans are a contract between a homeowner and a home warranty provider. Home warranty companies agree to repair or replace damaged home systems and appliances covered under the plan if they fail while the policy is active. However, these plans tend to have a lot of fine print that can limit their utility.
When you buy homeowners insurance, you're making an agreement with an insurance company, which is similar to home warranty plans. The difference between a home warranty and home insurance is what is covered. Home insurance pays for home repairs if the policyholder's property or possessions are damaged due to fire, storms, vandalism, or similar disasters. But they don't cover costs associated with routine wear and tear. If an appliance breaks down, that's the responsibility of the homeowner.
Home warranty plans are supposed to cover the breakdown of appliances and systems, like an HVAC system. The best home warranty companies will send a technician out to inspect the damage and, if appropriate, repair or replace the item. But the policy terms often hide a lot of caveats that can make it difficult to cash in on these policies.
Home warranty plans usually cost several hundred dollars per year, but the exact price varies depending on the home warranty company in question and which plan the homeowner chooses. Some plans only cover home appliances or home systems. Others use an a la carte approach where homeowners can choose what they want covered and what they don't. All of this will affect the annual cost.
If the homeowner needs to take advantage of their home warranty, there's usually an additional service charge. This is often somewhere between $75 and $125 per visit. If multiple technicians need to assess the problem, the homeowner could end up paying this fee multiple times.
The answer to the question "What does a home warranty cover?" isn't all that straightforward, but generally speaking, they usually cover the following.
Home systems include HVAC systems, furnaces, ductwork, electrical wiring, and plumbing, among other things. Most of these come standard in traditional home warranty plans, but sometimes HVAC system coverage costs extra.
Appliances like refrigerators, dishwashers, washers, dryers, stoves, and water heaters are typically covered under home warranty plans. Age usually isn't a disqualifying factor as long as the appliance is operational when the policy goes into effect.
Pools are sometimes covered under a home warranty plan, although this is usually an optional coverage. Interested homeowners must pay extra for this.
Well pumps are another common optional coverage for homeowners who don't mind paying a little extra.
Some home warranty plans enable homeowners to add coverage for septic tank pumping if they want. But this usually costs extra.
The following things usually aren't covered under most home warranty plans.
The fine print of most home warranty plans state that the homeowner must maintain the items in question according to the manufacturer's recommendations. Failure to do so could result in a denied home warranty claim.
This can be problematic, especially for homeowners who receive a home warranty as part of a house sale. If the former owner failed to maintain the appliances and systems in their home, the home warranty won't apply, even though it's not the current owner's fault that the systems weren't maintained.
There's often a clause in home warranty contracts stating that, if an item needs replacing, it will be replaced with a similar model. But there's usually language that forbids the homeowner from choosing which specific appliance they want replaced. This decision is left to the home warranty company.
Some people may not like this, especially in a kitchen where homeowners typically want all of their appliances to match.
Home warranties can provide peace of mind for homeowners worried about out-of-pocket costs if their home's appliances or systems break down. But it's extremely important to read the fine print first so the homeowner understands what they're getting -- and what they're not.
If a homeowner decides that a home warranty doesn't provide the security they need, they can always skip the policy and set aside money in an emergency fund for appliance breakdowns. This way, they'll be prepared should something happen and they'll have more control over which contractor they use and how the job is handled.
Homeowners who are interested in purchasing a home warranty should do the following:
The best home warranty company depends on the homeowner in question and what they want covered. It's a good idea to compare quotes from several companies before making a decision about which to choose.
Home warranties usually cost between $500 and $750 per year on average. But homeowners who are interested in optional protections could pay more. There's also a service fee per call, which normally ranges from $75 to $125.
A basic home warranty usually covers the core systems and appliances in a home, like the furnace, water heater, refrigerator, stove, electrical system, and plumbing, among other things.
It's possible to buy a home warranty at any point, though they're often purchased when a home changes hands.
Some home warranty providers impose a 30-day waiting period before allowing homeowners to use their home warranties.
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