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Home warranties can provide homeowners with peace of mind, but is a warranty right for you?

Buying a home is a very substantial investment, and home warranties are increasing in popularity as a means of giving homeowners peace of mind. Warranties can protect homebuyers against unforeseen problems or defects in many of the home’s major systems and appliances. But before purchasing one, it'll help to know a bit more about what a warranty covers and what it costs.

By the end of this article, you’ll know what a home warranty is, what it covers, and most importantly, what a home warranty costs. With this information, you can decide if a home warranty is right for you.

What's a home warranty?

A home warranty is designed to cover some of the most important parts of your home. Major home systems like plumbing, electrical wiring, and heating and cooling are covered under a standard home warranty. A warranty can help protect you in the case of faulty installation, poor design, or breakage outside of the normal wear and tear on these systems.

Typically, such warranties will also cover the major appliances in your home. This can include refrigerators, washing machines, dryers, and dishwashers. Anyone who has owned a home before knows that when one of these appliances breaks, it's a major headache involving costly repairs and inconveniences.

Ideally, if one of these systems breaks down or otherwise malfunctions, the home warranty will cover the cost of repair or replacement. For many homeowners, knowing that such unforeseen costs are covered is worth the warranty cost alone. Similar to insurance, you pay into a warranty, and the company providing the warranty will take care of the costs of fixing whatever is broken.

How do I make a claim?

Most companies providing home warranties require you to call them first. This can benefit homeowners because many companies will then arrange for a contractor to come out to asses the problem. The contractor will diagnose the issue and order parts or arrange for a replacement. In most cases, the homeowner pays no out-of-pocket costs as this isn’t a reimbursement model.

What isn't covered? 

A home warranty is not a “get out of jail free” card and requires that the homeowner perform basic maintenance on major systems and appliances. That is to say, if you never change an air filter in your home’s HVAC system and it leads to a failure, you’re on the hook for those costs. It's on you (the homeowner) to provide basic, routine maintenance to keep things working well.

Home warranties also don't cover what are called “known conditions.” If you buy a home and a warranty, that warranty will not retroactively fix any problems with the home. This is where a careful home inspection and negotiation with the seller is key when buying a home. In a way, it's similar to some health insurance plans that will not provide coverage for “pre-existing conditions.”

What does a home warranty cost?

Just as all homes are different, so are the warranties that cover them. Premiums are determined by the size of the house, the complexity of its systems, and the number of appliances. For example, the company providing the warranty is assuming greater risk when covering a larger house with more appliances and more expensive home systems.

Most home warranties will cost between $300 and $600 annually. Premiums are typically paid on a yearly basis, but some companies do offer monthly payments at an additional charge. There may also be service fees associated with each visit to the home to assess problems. On average, these fees can range anywhere from $10 to $50 per visit.

Another factor that plays into a home warranty’s cost is the level of coverage offered. Companies frequently offer tiered levels of services with lower per-visit fees on higher levels of coverage. Other perks like more comprehensive coverage and higher levels of customer service are typically offered at the higher tiers.

Home Warranty Reviews

Like all aspects of buying and maintaining a home, it's up to the consumer to make an informed choice as to whether a warranty is right for them. In some states, it's required that home builders provide warranties to their customers. Not all warranties are created equal though, and it's on the buyer to understand the regulations in their state and what they cover. Your real estate agent should have a good grasp of the rules and will be able to explain them to you clearly.

Much like insurance companies, home warranty companies don't make their money by paying out large sums of money for home repairs. Read the contract carefully to understand what's covered and what's not. They're often intentionally long and difficult to understand in order to obscure what services they'll provide under the warranty. For instance, in the case of a range and oven, the warranty may cover the heating coils and electronic but not, say, the knobs on the range itself.

Another commonly expressed concern of those with home warranties is the length of time it can take for repairs. As opposed to contacting a contractor or repair person directly, you're going through the warranty company, who then contracts out the work to a subcontractor. Additionally, these companies often look for parts or replacements at the lowest possible cost which may incur additional shipping time while slightly more expensive parts may be available locally.

At their best, home warranties can provide a sense of security to homeowners, knowing that any surprise repairs or replacements will be taken care of. For some, a home warranty’s cost is well worth it. However, like anything other major decisions involving your home, you should do your homework. Talk to others and read any contracts carefully before buying a home warranty.