Prorated Warranty

What Is a Prorated Warranty?

A prorated warranty is a type of service agreement that features tapering coverage over time. In the home services industry, prorated warranties are common for roofs, foundations, HVAC systems, siding, structural elements, and other parts of the home that are meant to last for many years before being replaced or redone. Below is more in-depth information on how prorated warranties operate and the advantages they can provide to homeowners.

How Does a Prorated Warranty Work?

While the details of every warranty are different, prorated warranty terms follow a common principle. The coverage generally scales down over time, and the homeowner is progressively responsible for an increasing percentage of repair costs until the warranty ultimately expires. 

Let’s look at an example. Imagine you have recently hired a contractor to replace your home’s roof. When the job is complete, you agree to 30 years of prorated coverage. The terms of this warranty might cover parts and labor in full if the roof requires repair within five years. After the five-year mark, though, you might be responsible for a percentage of repairs costs that is proportional to the age and duration of the warranty. So at 15 years, halfway into the warranty’s coverage term, 50% of the repair costs could be your responsibility. At 20 years, your share of the cost could be two-thirds. If a problem arises near the 30-year mark, the contractor or warranty provider would contribute very little to repair costs. Beyond 30 years, you are exclusively responsible for paying for any repairs.

The same operative principle applies for different products and warranty durations. In some cases, the warranty provider may phase out coverage for specific parts or product components. A refrigerator manufacturer, for example, might offer prorated coverage that protects the sealed refrigeration system for a period of five years or more, but parts coverage for the rest of the appliance could expire after only a year or two.

Benefits of Prorated Warranties

The overarching benefit of any warranty, prorated or not, is financial coverage to support expensive home repairs or equipment replacements. Only a small percentage of homeowners are prepared to pay out of pocket to repair or replace major home appliances or the structural elements of a house. Prorated warranties ensure that a third party is paying at least a portion of the costs, even if it comes in the form of a prorated warranty refund or reimbursement. 

Prorated coverage scales back over time, however, so the financial benefits can wane, at least relative to non-prorated warranty coverage. 

What benefits, then, are exclusive to prorated warranties? Upfront costs. Typically, prorated warranties have lower premiums to compensate for coverage that gradually diminishes. If you have less money to invest in warranty protection at the outset, prorated coverage can be a great way to ensure some protection without spending too much.

What Is the Difference Between Prorated and Non-Prorated? 

The underlying difference between prorated coverage and non-prorated coverage is that prorated coverage operates on a sliding scale. Non-prorated coverage, on the other hand, remains static over time. The expected contribution of your warranty provider toward any repair or replacement costs does not change until the policy ultimately expires.

While the nature of coverage is the most significant difference, there are some other dissimilarities to keep in mind as well. 

• Cost. Prorated warranties tend to be cheaper than their non-prorated counterparts. Bear in mind, though, that while you might save on upfront costs, you could end up paying more in the long run if you need to make a claim years down the line when your provider’s coverage obligations have decreased.

• Complexity. Non-prorated warranties are usually straightforward. The policy terms describe consistent coverage applications. Prorated warranties, by their very nature, are more complex. The coverage terms change over time. When it comes time to make a claim, you might spend a little more time determining your financial obligations if you have prorated coverage.

• Degree of reassurance. The peace of mind that warranties offer is hard to overstate, but you might find more reassurance with non-prorated warranties. Prorated coverage is somewhat less predictable and leaves you to shoulder a greater share of the financial responsibility as the policy ages.

Prorated Warranties in Home Warranty Plans 

Prorated coverage is not necessarily for every homeowner. If you plan to stay in your home long term, you might be better suited by non-prorated coverage. While the upfront costs or premiums may be more expensive, you stand to save money over a larger time frame because you’ll be better financially protected if an issue presents itself years down the line. And, unless there are serious flaws in parts or workmanship, problems are more likely to afflict your roof, HVAC system, foundation, and expensive appliances as they age, not when they’re brand new.

Still, prorated coverage can be remarkably beneficial. It’s certainly better than no protection at all, and it’s a good option for homeowners who anticipate moving within a few years. For example, if you replace your roof to prepare for a home sale, prorated coverage is likely preferable. You’ll pay less than you would for non-prorated coverage, and you can likely sell before your prorated roof coverage scales back.

Whatever your coverage needs, reach out to the Liberty Home Guard team for more information. We have a host of coverage options that can scale up or down to best accommodate your home. Call (833)-543-9700.