What Is a Home Warranty?

Though it’s easy to forget in the bustle of day-to-day life, we depend on all kinds of home systems and appliances to keep our homes safe and comfortable. Our lives would be very difficult without reliable plumbing or electricity, or without a functioning refrigerator or stovetop.

Of course, these systems and appliances can and do malfunction from time to time. Repair can be exceedingly costly, and a standard homeowner’s insurance policy will rarely cover home equipment that breaks down after years of normal wear and tear.

When homeowners started to look for convenient, affordable ways to protect their homes, home warranty plans emerged as an effective solution. So, what is a home warranty, and how does it work?

What is a home warranty plan?

A home warranty is a service contract that helps homeowners maintain, repair, and even replace critical home components when they break due to routine use. A home warranty provider is a company that issues these contracts and manages a homeowner’s claim when an appliance or system requires professional service.

A home warranty has the potential to save you thousands in the long term. It can also simplify your budget, offer peace of mind, and even raise the value of your home. But there is substantial variety among home warranty providers and plans. Let’s take a closer look at the home warranty world so you can make an informed decision about purchasing your own home warranty protection.

How does a home warranty work?

Home warranties are like homeowners insurance, but there are a few key differences. Like homeowners insurance, the homeowner pays into a plan each month or year to maintain home warranty coverage. When something breaks down, the homeowner submits a claim, plus the applicable deductible, to have it repaired. In the home warranty industry, the deductible is typically called the service or trade call fee. Compared to homeowners insurance, which typically has a big-ticket deductible between $500 and $1,000, home warranties have a more nominal fee––closer to $100 or less.

Once you’ve filed a claim, the warranty provider then finds a licensed technician in their network and pays to have the system or appliance serviced or replaced up to the outlined coverage limit.

Homeowners insurance applies after a covered peril, like vandalism, theft, or a specific weather event. It will pay to cover liability, loss of use, and property loss, but it doesn’t protect against normal wear and tear. In these situations, you can use a home warranty to supplement the costs of repairing and replacing your home systems and appliances.

Homeowners insurance is also a more general form of coverage. It will cover structural damage and personal property loss as the result of a covered peril, but it doesn’t cover specific interior components of your home. Home warranties, on the other hand, cover a specific set of systems and appliances.

Home warranties offer a lot of flexibility to choose the coverage and price point that makes the most sense for your needs. Most worried about your home systems? You can easily cover just those. More worried about your appliances? There are appliance exclusive plans as well. You can also choose optional add-ons to further expand your coverage to items like your swimming pool and spa equipment. 

Is a Home Warranty Required?

Neither home warranties or home insurance are mandatory in any state, but home insurance is typically mandated by mortgage lenders. Home warranties are more of a personal choice. Some homeowners may opt to include them when they sell their home to provide the buyer with additional peace of mind, but you be also be introduced to one through your real estate agent.

Learn more: Why You Should Request A Home Warranty

In any case, a home warranty can help defray the costs of repairs or replacements, especially if you have multiple items break down in quick succession. While you pay be able to afford the out-of-pocket expenses if just your air conditioner breaks down, do you feel confident that you could comfortably afford the costs if your air conditioner breaks shortly after your dishwasher and not too long after that, you’re staring down the barrel of a malfunctioning garbage disposal?

If the answer is no or you sense your face go flush at the potential stress of the situation, you may find a home warranty is worth it after a simple cost-benefit analysis. 

How much does a home warranty cost?

The average home warranty plan has two main costs associated with it. First is the premium. This is the fixed amount you pay each month or year to keep your plan active. The price of the premium depends on both the company and specific policy. A plan with more expansive coverage or luxury coverage will have a higher premium. But for most plans, the premium ranges between $25 and $50 per month, or between $300 and $600 per year.

The second main expense is the service fee. This is analogous to the copay on your insurance plan. The service fee is due only when you submit a claim to have something in your home repaired. A typical service fee is between $75 and $150.

There are other costs to consider as well. Some plans include a deductible, or a dollar amount you need to pay before the plan starts to pay out. Other plans have coverage limits. These are caps on the amount the provider will pay within a certain period of time.

Before agreeing to a policy, it’s important to have a frank discussion with your potential warranty provider so you can fully understand how much you’ll need to pay to protect your home. The goal, after all, is to spend less on warranty costs than you would have spent on home repair if you were not covered.

What is an extended warranty or service contract?

Most appliances, big and small, are protected by a manufacturer’s warranty for a limited time after purchase.

A new refrigerator, for example, might have a limited warranty of one year, and if the refrigerator fails in that first year, the manufacturer will cover the cost of parts and labor required for repair.

An extended warranty or service contract is meant to prolong an appliance’s coverage when the manufacturer’s warranty expires. Some manufacturers offer their own extended warranties, service contracts, or protection plans. Others partner with third parties to underwrite coverage. Often, you can also find extended warranty coverage through home appliance warranty companies.

To be clear, a manufacturer’s warranty poses no additional cost for the consumer. An extended warranty, though, does require payment. This could be a one-time expense or a monthly or yearly fee.

How do home warranties differ from extended warranties or service contracts?

A home warranty and extended warranty operate on similar principle. With each, you are paying a modest amount of money to insure against the risk of expensive repair.

The main difference between a home warranty and extended warranty is the scope of coverage. An extended warranty covers a single appliance. A home warranty, on the other hand, can cover virtually every appliance in your home. Standard plans protect major kitchen and laundry appliances, but you can find coverage for electronics, generators, air conditioners—you name it.

You’d most likely know if you had a home warranty because you’ve either received paperwork or paid the fee. If you’re unsure about your coverage, reach out to your provider or consult these tips to find out if you have a home warranty.

How to choose a home warranty provider

While price is an obvious consideration when shopping for a home warranty, it should be only one of many factors that influence your decision.

You should also compare home warranty companies by reading impartial reviews online. Find trusted, reputable companies and organizations, such as Google or the Better Business Bureau. When visiting review sites, check for advertising disclosures. Many review sites solicit financial compensation from the companies they write about, which leads to biased and specious rankings, so we recommend focusing predominately on mid-range reviews to get a well-rounded understanding of the company’s reputation.

Check that your potential warranty provider has not been accused of fraud or other illegal or unethical practices. And know that different states have their own laws and regulations that apply to the home warranty industry. You should confirm your potential provider is licensed to operate in your state. You can vet these issues by conducting a simple search into each company’s background, crowdsource information for your family and friends, and spending some time on the phone with customer service representatives before making your final choice.

Make sure you’re aware of all the costs associated with your potential plan, from the premium and service fee to the less obvious expenses,  such as costs beyond your coverage cap.  Discuss with your provider the different items and circumstances that are and are not covered by your policy. You should request a sample copy of the service agreement, so you can read through it carefully and ask clarifying questions.

Finally, the best home warranty company for you should be flexible. No two homes are exactly alike. No two warranties should be either. Take stock of everything in your home that you would like to protect. Identify appliances and systems that may still have coverage from a manufacturer’s warranty, builder’s warranty, or other guarantee. Your policy should provide coverage only for the items that need it.

Finding the right home warranty for you may take time, but you will be rewarded for your diligence.

Why are compliant home warranty companies so important?

The home warranty industry is highly regulated, and different states have their own requirements for licensure. Unfortunately, there are some fly-by-night companies that skirt state regulations or sell services without an appropriate license.

Regulatory compliance means the consumer can hold the warranty company accountable. Many states require home warranty providers to put up financial securities. This makes it much easier to penalize the company if it unrightfully denies a claim or defrauds consumers. In short, companies that evade regulations are more likely to get away with unethical or illegal practices. You can double check compliance by reviewing licensure and any past/present legal actions through your state’s consumer protection body. Every state is different, but the Attorney General’s Office is a good place to start.

Is a home warranty worth it?

We started Liberty Home Guard to improve the home warranty experience for homeowners across the United States. 

We regularly update our blog with new information on home warranties and home maintenance to give homeowners the knowledge they need to better protect their most important asset.  To demonstrate this commitment, we offer three plan options and dozens of add-ons, customized to your property type and location, so you can choose the best coverage for your needs. Our team is ready and eager to take your call to discuss your options or you can view a free, no-pressure quote online. 
 

You can also learn more about the right home warranty for you by talking with our team. Call (866)-748-2399.