Understanding Home Warranty Insurance
What is a Home Warranty?
Home warranty insurance protects a homeowner from paying for unexpected repairs on appliances and home systems, such as heating and cooling. In the event that an appliance needs repairs from normal wear or tear, a home warranty will cover the repair or replacement of the appliance. Depending on the home warranty insurance purchased, you may have to pay a service fee or deductible.
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What’s Covered; What’s Not
All home warranties differ in what’s covered. Your real estate agent may be able to assist you in choosing the coverage that best fits your needs, and is likely to be aware of several providers available to you.
Standard plans often cover heating, cooling, electrical, plumbing, water heater, and major appliances including refrigerator, dishwasher, garbage disposal, stove, and oven.
While regular wear and tear are covered, misuse, abuse, and intentional damage are not. If you fail to perform regular maintenance on your home systems and appliances, it is likely they will not be covered under the warranty. If the idea of keeping up maintenance is daunting to you, there are many companies that offer service plans to help you do just that.
If something isn’t included in your home warranty insurance, such as a swimming pool, garage door, or water filter, ask if you’re able to upgrade your policy to include those items, or add them on. If one company is unable to cover something for you, check with other companies to see if coverage is available.
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How Much Does it Cost?
Home warranty costs will vary by location and provider. The type of home you have–whether it’s a single-family residence, condo, townhome, or duplex–will also affect the cost. A standard home warranty will usually cost between $300-$500 per year. Add-ons to your coverage will increase this cost. Most home warranties are paid in full, however, some providers may have monthly payment plans.
Service fees range from $60-$100 per repair request. This is the price you pay to have a professional come to your home and assess the issue. The serviceman will make a repair if possible, before offering to replace your appliance or home system. In addition to the service fee, you may still have to pay a deductible before the cost of repair or replacement is covered by your warranty.
Home Warranty vs. Homeowners Insurance
While both offer protection for your home, a home warranty differs from homeowners insurance. Understanding the difference is important, but having both offers the maximum protection for your home.
Homeowners insurance policies often cover accidental damage to your home and personal belongings from theft, as well as things like fire, storms, wind, water, and other natural disasters. Keep in mind, insuring a manufactured or mobile home is a little different than insuring a regular home. The four main areas of coverage include:
- Personal property;
- Interior and exterior;
- Loss or damage;
- General liability.
The coverage on your home warranty will vary by location, as well as the company you choose to go with. Home warranties typically cover the repair or replacement of your home’s appliances, including:
- Air conditioning;
- Roof leaks.
For example, if a pipe was to break in your home, your homeowner’s insurance wouldn’t cover the repair of that pipe. However, your home warranty would. If your flooring was damaged from the pipe burst, your home warranty wouldn’t help, but your homeowners insurance would cover the cost of repairs to your flooring.
Types of Home Warranties
There are many types of home warranties available. These include:
- Homeowner Warranty. This protects the owner of a home from the cost of repair or replacement of a home’s appliances and systems.
- Seller Home Warranty. A seller may purchase a home warranty when listing his or her house for sale, in order to protect against unexpected out-of-pocket expenses from the breakdown and repair of appliances. There is usually an option to transfer the warranty to the buyer upon closing.
- Buyer Conversion Warranty. This warranty is transferred to the buyer of a house and, usually, goes into effect on the day of closing.
- Buyer Direct Warranty. This is a warranty bought directly by the buyer of a house and, usually, goes into effect on the day of closing.
- Renewal Warranty Contract. After the initial home warranty period has passed, there may be an option to renew the home warranty for continued protection.
Who Should Buy Home Warranty Insurance?
Anyone who purchases a home and is concerned about the cost of repairs should purchase a home warranty.
First-time homebuyers are often unaware of the maintenance costs associated with the ownership of a home and should purchase a home warranty to protect against unforeseen repairs or even more costly replacement of home appliances.
Home sellers should purchase home warranty insurance in order to protect against the cost of repair or replacement of appliances during the listing period. After the home is sold, this warranty may often be transferred to the buyer, to take effect on the day of closing.
Owners of older homes run a greater risk of appliance breakdown. Getting a home warranty will mitigate this risk.
Real estate agents may purchase home warranties on behalf of their clients, both buyers and sellers. This protects their clients from the costs associated with the repair or replacement of appliances. It’s important for real estate agents to do their homework to determine if any extended coverage is needed. There may be things that are not covered under a standard home warranty, but that may be added to the home protection plan for an additional cost.
Rental property owners may wish to protect the appliances in their rental with a home warranty. This makes repairs easy, as most home warranty plans have 24/7 hotlines for repairs to major systems, such as an air conditioning unit or heater that goes out in the middle of the night.
Shopping For The Best Home Warranty Coverage
When you shop for home warranty insurance, make sure to compare quotes from multiple providers. You’ll also want to ask some of the following questions:
- Is an inspection required prior to the purchase of the home warranty?
- What systems and appliances are covered?
- What’s the deductible amount?
- How much is the service fee?
- Is there a cap on repairs and/or replacements?
- Is there a limit on the number of repair calls you can make?
- What’s the annual cost of the warranty?