For many home sellers and home buyers today, a home warranty comes as standard fare during the transaction. In some cases, it is the seller who will purchase a home warranty as an extra perk for buyers interested in purchasing the property.
In many more cases, the buyer will choose to purchase a home warranty to help keep home repairs and maintenance costs more reasonable. If you have never bought a home warranty before, you probably have lots of questions, including what a home warranty does and doesn't cover, the average cost of a policy and what type of property makes the best candidate to purchase a home warranty.
What Is a Home Warranty?
As Investopedia explains, there are important differences between a home warranty and homeowners insurance. However, because the two terms sound so similar, it is easy to get them confused.
A homeowners insurance covers major damages such as fires, water pipes bursting, storm or hail damage and liability for theft or accidents occurring on the property. In contrast, a home warranty is designed to cover specific appliances and components that could break down and need repairs.
What Does a Home Warranty Cover?
It is important to read your home warranty policy with care to be sure that the components and appliances that need coverage are included in the policy.
Commonly, a standard home warranty policy will cover these types of appliances: air conditioner, furnace, water heater, sump pump, jacuzzi, garage door, plumbing, clothes washers, clothes dryers and dish washers.
Most home warranty insurers will also offer an option to purchase riders for additional coverage, such as for a pool on the premises.
How Does the Claims Process Work?
Submitting a claim under a home warranty insurance policy is not unlike how some health insurance policies work.
Typically, the home warranty company has contracted with certain local providers to service property owners in your market area. These service technicians agree to do a diagnostic call for a lower fee in exchange for steady referrals.
Here is how most home warranty claims processes work:
- You make a call to the home warranty customer service department to request service for a covered appliance or component.
- The home warranty company sends out one of their contracted providers to diagnose the issue.
- If the issue is fixable, the provider will also fix it during the service call.
- You pay that provider a service fee (typically between $50 and $75) for their service.
What Does a Home Warranty Cost?
According to Popular Mechanics, the type of home warranty you have will affect how much you pay. A very basic policy may only cost you $200 to $300, but it will cover fewer appliances and components.
A more comprehensive policy may cost you $500 or $600 (and on up if you add optional riders for extra coverage) but you have more protection.
Should You Buy a Home Warranty?
If the seller does not pay for a home warranty policy when you buy the property, you will have to decide whether it is worth it to buy your own.
Here, the pre-purchase inspection report can help you decide. If the inspector cites obvious neglect or wear-and-tear on certain appliances or if an appliance was incorrectly installed, it is unlikely a home warranty will protect you.
But if you are simply inheriting older components that have been well-maintained, it can be a wise choice to purchase a home warranty, especially if you are short on ready cash after completing your home purchase.