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Homeowners insurance can cover a wide range of damages, but you might consider getting a home warranty as well for added protection.
Do you need a home warranty?
Homeowners insurance protects your home and belongings if they're damaged, but there are limits to your coverage. A home warranty can fill in the gaps by covering normal wear and tear on your home's systems.
Home warranties are optional coverage that can pay for repair or replacement costs if something goes wrong with your plumbing, electrical, or HVAC system. A home warranty can also cover your refrigerator, stove, and other appliances.
Is a home warranty worth it? Understanding how home warranties work can help you decide if one might be right for you.
What is covered in a home warranty policy?
Home warranties cover repair, replacement, and maintenance costs in two distinct categories: appliances and home systems. Your warranty is designed to protect those things against normal wear and tear.
In terms of specific items that a home warranty policy covers, the list can include your:
- Garbage disposal.
- Washer and dryer.
- Hot water heater.
- Plumbing system.
- Electrical system.
- HVAC system and ductwork.
Coverage for these items may be automatic in a standard home warranty policy. You may need to purchase add-on coverage for things like pools or hot tubs, septic systems, or a well pump if you're not connected to city or county water lines.
What is not covered in a home warranty policy?
While home warranties can be fairly comprehensive, there are certain things they may not cover. For instance, home warranties generally don't cover appliances or systems that are still covered by a manufacturer's warranty.
There can also be exclusions with regard to the type of wear and tear or damage that's covered. Home warranties typically don't cover:
- Cosmetic damage, such as scratches or dents.
- Damage caused by termites or other pests.
- Damages caused by misuse.
- Anything that's already covered by a homeowners insurance policy.
- Pre-existing conditions that caused the damage.
- Acts of nature.
Solar panel systems are also excluded for the most part. And a home warranty usually won't cover any modifications that might need to be made to your home in order to complete repairs or servicing.
For example, say you bought a home warranty for your electrical system and you need to have the breaker panel replaced. Your policy might cover the panel replacement but not any sheetrock repair that needs to be done once the replacement is complete.
How does a home warranty work?
Home warranties work similar to other types of warranties when you have an issue.
First, you file a claim with the company that holds your warranty policy. The warranty company then sends out a technician to evaluate the claim. If you have damages or a service issue that's covered by the warranty, your policy can help with making repairs or paying for a replacement of the affected appliance or system.
You may be expected to pay a deductible when filing the claim, but as long as the event is covered your policy should pay the rest of the cost. It's always a good idea to read the fine print to check for any exclusions or limitations.
For example, say that your refrigerator conks out. You call your warranty company, which sends out a technician. The technician agrees that you need a new fridge and schedules a time to replace it. After paying the deductible, the warranty covers the cost of the new refrigerator and its installation, but you have to pay an additional fee out of pocket to have the old one disposed of at your local landfill.
Home warranty vs. home insurance—same?
Home warranties and home insurance are not the same in terms of the scope of what they cover and what they're designed to do for you. Here's a closer look at how they compare.
Not mandated by law, but lenders generally require it to obtain a mortgage.
Covers appliances and major home systems
Covers your home's structure, personal belongings, and other structures on the property such as a shed or garage
How it works
Pays for repairs, replacement, or maintenance of covered appliances and systems
Pays to repair or replace your home, other covered structures, and belongings; Can also pay for temporary accommodations if you're unable to live in your home because it's damaged, or medical bills relating to injuries when someone is hurt on your property
What does home warranty cost?
The cost of a home warranty can depend largely on which company you're purchasing a policy with and what's included in the policy. A basic home warranty can cost $500 or more annually, which can turn into $1,000 or more if you're adding on supplemental coverage.
Cost is an important consideration, especially if you're already paying for a home insurance policy. On average, a typical home insurance policy runs $2,777 per year but where you live can make a difference in how much you pay.
Is home warranty worth it?
Whether a home warranty is worth getting can depend on a few things, including the age of your home's appliances and systems, whether any of your appliances or systems are already covered by a manufacturer's warranty, and how much you could reasonably afford to pay toward repairing or replacing them if you had to do so out of pocket.
Here are some of the main pros and cons to weigh when considering a home warranty.
- Convenience. Having a home warranty can make it easier to find a qualified technician when you need to make repairs or schedule maintenance. Home warranty companies work with a network of repair professionals so you don't have to go searching for one.
- Reassurance. Knowing that your systems and appliances are covered against wear and tear can offer some peace of mind. Once the inevitable happens and something breaks, all you have to do is call the warranty company to get the repair or replacement process started.
- Cost savings. While home warranties have premiums and deductibles, paying them could be more cost-effective than shouldering the full cost of replacing or repairing appliances and home systems yourself.
- Time savings. A home warranty can also save you time since you don't have to try to make repairs yourself. Again, you can call on the warranty company to schedule a time for a technician to come out and handle any necessary repairs or maintenance.
- Exclusions. Home warranties can cover a lot of things but they don't cover everything. It's possible that, even after paying premiums and deductibles, you may still be responsible for certain costs yourself if they're not covered by your policy.
- Limited choice. If you have a specific repair person you'd like to work with but they're not covered by your warranty, you won't be able to use them.
- Claims denial. Filing a claim on a home warranty does not guarantee that it will be honored. If the warranty company finds a reason to deny the claim, you could end up having to pay for the cost of repairs or replacement yourself.
- Time limits. Home warranties are typically only good for a certain time frame. For instance, you may purchase a warranty for 12 months. After that, you'll have to decide if you want to purchase another warranty or a warranty extension, which means paying more in premiums for coverage that you may or may not use.
How to choose a home warranty
Choosing a home warranty requires research to find the right policy. You can compare home warranty companies and coverage options online. As you shop around for a policy, here are a few questions to ask:
- What kind of coverage do I need?
- Are any of my appliances or systems already covered by a manufacturer's warranty?
- What's the most I'm comfortable paying for home warranty premiums?
- Is there an upper limit for the deductible I'm willing to pay?
- What exclusions or limitations might apply?
Getting quotes from multiple home warranty companies can give you a better idea of what you'll pay for coverage and what's included in the policy. You may also want to spend some time reading customer reviews to get a sense of what people do or don't like about a particular home warranty company.
For example, if the majority of customers say that response times are slow when filing a claim, that's definitely something you'd want to know beforehand.
Where to apply for a home warranty policy
If you're interested in applying for a home warranty policy, it's important to choose a reputable company to work with. Things like good customer support, a large network of repair professionals, and positive customer ratings are all nice features to have when selecting a company.
Choice Home Warranty, for example, offers 24/7 support so that filing a claim or getting help is as easy as possible. Choice has handled more than six million service requests, so they're experienced in handling home repair and replacement issues. The company has a nationwide network of more than 25,000 repair professionals who can respond to claims in a timely manner.
When you're ready to apply for a home warranty, you can start with a rate quote. From there, you can provide the warranty company with additional information about your home and the systems you'd like to cover to put together a policy that fits your needs.
When is a home warranty worth it?
Getting a home warranty can be more appropriate in some situations than others. You might consider getting a home warranty if you:
- Don't want to worry about paying for repairs or replacements out-of-pocket.
- Own an older home or have older appliances that are nearing the end of their life.
- Aren't comfortable with—or don't have the time for—repairing appliances or other home systems yourself.
- Don't want to spend time trying to find a repairperson or contractor when something breaks or requires servicing.
- Have limited money in savings that you could spend on repairs.
- Are looking for some peace of mind and want a policy "just in case".
When to skip a home warranty
Does everyone need a home warranty? No, and that's a big reason why this type of coverage is optional.
You might take a pass on a home warranty if you:
- Already have a manufacturer's warranty that covers your home appliances or systems.
- Are purchasing a new construction home, which would come with its own warranty coverage.
- Can handle making repairs yourself or already have a trusted contractor that you prefer to work with.
- Are comfortable shouldering the cost of repairing or replacing appliances and home systems.
Home warranty alternatives
A home warranty isn't the only option for covering home repairs or replacement costs. Here are a few other ways you might pay for appliance breakdowns or home system repairs.
Savings (or emergency fund)
An emergency fund is designed to hold money that you can draw on when you have unexpected expenses. Home repairs can fall under that umbrella if something breaks unexpectedly or needs to be replaced.
If you're looking for the best place to keep emergency savings, an online bank could be a good fit. Online banks can offer higher interest rates to savers, while charging fewer fees. Sofi, for example, offers a competitive APY with no minimum balance requirements and no maintenance fee. The rate is one of the highest among online savings accounts.
Interest-paying checking accounts allow you to earn interest, while offering the convenience of being able to access your money via a debit card or checks. Quontic Bank, for example, offers a high-interest checking account that earns interest when you make a minimum number of debit card transactions each month. You just need $100 to open the account.
Certificate of deposit (CD) accounts
CD accounts might be a good alternative to a home warranty if you want to set aside money for planned repairs and replacements. With a CD, you deposit money and earn interest for a set term. Once your CD matures, you can withdraw your initial deposit and the interest earned.
If you've got at least $2,500 to deposit, you might open a 12-month CD with Discover® Bank. If you have $1,000 to save, you might consider a CD with CIT Bank instead. While you get a higher rate with Discover® 12-month CD, you can withdraw without penalty with CIT bank 11-month CD. It all depense on which option is best for you.
If you don't have cash in reserve to pay for home repairs, you could get a personal loan instead. With Upgrade, for example, you can borrow up to $50,000 to make home repairs or improvements. Upgrade also offers high yield savings accounts and rewards checking for all-in-one money management.
While taking out a loan may not be ideal, it can be less expensive than using a high-interest credit card to cover home repairs. Shopping around for rate quotes can help you find the best personal loan option.
7.99% to 35.99%
8.49% to 35.99%
6.40% to 35.99%
$2,000 - $36,500
$1,000 to $50,000
$1,000 to $50,000
24 to 72 months
24 to 84 months
36 or 60 months
TIME Stamp: Home warranties can offer peace of mind, but consider the cost
Getting a home warranty is something you might choose to do if you're worried about home repairs derailing your budget. Before buying a policy, it's helpful to look at your coverage options and what you might pay for a home warranty.
Frequently asked questions (FAQs)
How long does warranty last on a house?
Most home warranty policies last for one year. If you're getting a new home warranty from your builder, the policy may last for up to 10 years, depending on the coverage that you have.
How do you get your home warranty to replace an AC unit?
If your AC unit breaks down and needs replacing, it's possible that your home warranty may cover it. You'll first want to review the details of your policy to see if your HVAC system is covered and if so, whether there are any limitations or exclusions to coverage. From there, you can contact your warranty company to file a claim to have the unit repaired or replaced.
What is the best home warranty company?
The best home warranty company for you is the one that offers the level of coverage you need at a price you can afford. Choice Home Warranty is one of the better options but it's worth taking the time to compare different warranty companies to find one that you want to work with.
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