Home Warranty Insurance
Home warranty insurance is designed to cover what your homeowners insurance won't cover when they deny your claim, but is it worth it?
Owning a home is often an exercise in the unexpected. The plumbing has a knack for leaking when you can least afford it; the oven short-circuits at the most inconvenient time; and to add insult to injury, your homeowners insurance refuses to cover it. Fortunately, home warranty insurance may pick up the slack.
Home warranty insurance is designed to cover what your homeowners insurance won’t cover when they deny your claim. While that sounds great and all, it isn’t without its flaws, and some home warranty companies have been known to squeeze consumers and not honor the payouts they promised, leading some to question whether it’d be better to self-insure rather than take out warranty insurance.
What is the Difference Between a Home Warranty and Homeowners Insurance?
After your home or personal property are damaged or wrecked by a peril or accident that you believe your homeowners insurance policy covers, you file a claim to get a payout to cover the loss. If the peril is covered in your policy, and the loss isn’t less than your plan’s deductible, then there’s a good chance your insurer will help you out.
However, there are certain perils that almost no homeowners insurance plan will cover unless you get added coverage (like flooding, earthquakes, water damage, and mold), and circumstances they won’t cover even with the added coverage – such as neglect or wear and tear.
Home warranty insurance is intended to be the foil to home insurance when those circumstances arise. They’re essentially service contracts that promise to pay for the cost of repairs or replacement of appliances, plumbing, and built-in appliances like heating and air conditioning when they kick the bucket.
Sounds great, right? Well, unlike home insurance, exactly what appliances, plumbing, and circumstances home warranty insurance covers isn’t exactly clear, and if you’re thinking about this type of coverage, you’ll want to read the terms and conditions carefully. For example, your microwave may only be covered if it broke because of common electrical issue and won’t be covered it if, say, there was a giant piece of metal in your pasta that caused the entire thing to explode.
How Does Home Warranty Insurance Work?
Home warranty insurance works in similar fashion as a product warranty for that new computer or appliance. (Although you may not even need home warranty insurance if the appliances you need covered are new; they may already be covered under the product’s warranty.) It’s a service contract that promises to cover specific appliances under specific conditions.
The contract in effect pays for repairs or replacement of specific components in your home, like your HVAC system, your furnace or boiler, your swimming pool or spa, or your plumbing or electrical infrastructure. Your annual fee pays for dispatching a contractor (like a plumber or electrician) to your house to perform the repairs whenever a problem arises. But if a fire or fierce wind takes out half your house, your home warranty won’t foot the bill.
What Does it Cover?
Home warranty companies and providers generally offer several tiers of coverage and the breakdown usually looks something like this:
Basic coverage that may include the cost of plumbing systems, oven ranges, dishwashers, garbage disposal, exhaust or ceiling fans, sump pump and water heaters, heating and electrical systems, built-in microwaves or tubs
Enhanced coverage, like central air, clothing washers and dryers, refrigerators and even garage door openers; these may cost another $100 or more annually
Optional warranty coverage, such as pools and spas, well pumps and septic systems, standalone freezers and central vacuums
How Long Will it Last?
Most home warranty insurance coverage lasts about one year. Like home insurance, it’s typically a 12-month contract and is renewable from year to year.
How Much Does Home Warranty Insurance Cost?
Home warranties typically go for around $250-$500 annually, although an enhanced home warranty insurance plan can potentially run you closer to $1,000, so about the same amount as a homeowners insurance policy.
Besides the cost of the plan itself, you may have to pay additional expenses. For example, if a contractor comes in to fix something, you’ll also have to pay a co-payment or fee for the trouble, and fees range from about $60 to $120, depending on the scope of the work that needs to be done.
If a repair is considered too expensive, the provider may offer to just replace whatever is broken instead. The caveat here is that the home warranty company may only offer to pay for the depreciated value, forcing you to pay for the rest out-of-pocket to get the same appliance you had before.
There’s also limits on how much of something the company will cover. Some providers may only provide $1,000 in coverage for a single item over 12 months and a maximum of $5,000 for all items in your plan. Is home warranty insurance worth it?
It depends on whether your appliances or property already have protection or not, how likely your appliances are to break or be damaged, and if the warranty insurance company is a trusted insurer.
As we discussed earlier, if you recently bought a home and added new, spiffy appliances and a home entertainment system with a two-year warranty, you’re probably not going to need your appliances covered straight away. Some credit card companies and online retailers will even double the manufacturer's warranty, lessening the need even more for warranty coverage.
Lastly, is the home warranty insurer a trusted entity? Check with the Better Business Bureau, A.M. Best, and other consumer insights and ratings agencies to make sure they’re worth the price of doing business with – it might be better to simply self-insure instead.
When a Home Warranty is Worth it
They Can Protect Against Expensive Repairs
Sometimes warranties are simply necessary for covering overpriced repairs. The cost of a home warranty premium may be far less than what you might pay to repair or replace a major appliance out of pocket.
For example, replacing a central air conditioning unit can run homeowners an average $5,200, making that $500 annual enhanced home warranty seem like a bargain. If you own a house with older appliances teetering on the brink of collapse, paying for a warranty in case something breaks can buy you time before buying its replacement.
A home warranty isn’t just to cover recurring costs on older appliances or household parts needing repair. Homeowners who want to buy the best may be wise to take out a home warranty when populating their house with pricey or sophisticated equipment that’s expensive to fix long after manufacturer warranties expire.
They Can Save You Time
If you’re not the handy type and you’re pressed for time to find a repair person, having a home warranty saves you the trouble of comparing estimates and worrying about service contracts. With a warranty, you’ll call your warranty provider about that broken laundry room pipe and they’ll take care of the rest, sending the right repair person to your home. It’s covered under your plan.
When a Home Warranty Isn’t Worth it
Additional Fees Can Add Up
The annual cost of a home warranty isn’t where the expenses stop. There’s the deductible, but there’s also the service fees or co-payments that you make to the repair guy when he comes to fix your appliance. And depending on the quality of the repair, you may even want to tip him as well. Unless your home is rife with repairs left and right, you may not get the most value out of a warranty.
A Warranty May not Cover Everything
A warranty may not cover everything, and it may be the repair that you need the most that won’t qualify. Home warranty providers have been known to not cover major repairs like roofs, leaky windows, and basement moisture issues or chimney problems. If underground plumbing has been ruined by tree roots, for example, a warranty may not fix it.
There’s also a problem of many home warranty companies refusing to fix existing or pre-installed items that haven’t been properly maintained, or in some cases, improperly installed. This can be a big headache for homeowners, since what’s considered properly or improperly maintained is arbitrary; even if you’ve inherited a household full of older appliances, your provider may still refuse to honor the warranty if, for example, the hot water heater or fridge were mistreated by the home’s previous owner.
Service Providers Maybe Limited
If you’re not happy with the contractor or repair company that works with your warranty provider, you may be stuck with them. While it’s convenient that you don’t have to hunt down the right handyman, plumber or fix-it company to do the work, if you’re dissatisfied with the service provider, it may mean passing on a warranty you’re paying for. And that’s wasting money for nothing.