What is a home warranty?
A home warranty is a service contract you buy to cover the repair or replacement of your major home systems and appliances. The word warranty comes from the Old North French word warantie. It means a pledge or guarantee. Real estate companies started offering these specific home service contracts in the 1970s to give buyers peace of mind.
If your older refrigerator breaks down, you call the warranty company. They send a repair person to your house. You pay a small service fee for the visit, and the warranty company pays for the rest of the repair or the replacement. This contract is a popular choice when you buy a house with older systems. You can read more about caring for your machines in our guide to Appliances.
How it differs from insurance
Many people confuse a home warranty with standard Home Insurance. They do completely different things. Home insurance covers damage to your house and belongings from unexpected events. This includes fires, storms, theft, and accidents. Your mortgage lender requires you to have a home insurance policy in place.
A home warranty covers things that break from normal wear and tear. If a storm knocks a tree onto your roof, your home insurance pays to fix it. If your air conditioner simply stops blowing cold air because it is old, your home warranty pays to fix it. A home warranty is optional. No lender forces you to buy one.
How much does it cost?
You pay for a home warranty in two different ways. First, you pay a yearly premium to keep the contract active. Second, you pay a service fee every time you ask for a repair. Costs vary based on your location and the exact plan you choose.
- Annual premium: You will usually pay 400 to 800 dollars a year for a standard plan. You can pay this all at once or in monthly installments.
- Service fee: You will pay 75 to 150 dollars each time a technician comes to your house. This is also called a trade call fee.
What it covers and what it ignores
Most basic plans cover your main kitchen and laundry appliances. They also cover major systems like your plumbing, electrical, and HVAC & Climate Control. You can often pay extra to cover a swimming pool, a second refrigerator, or a well pump.
However, these contracts have strict limits. Warranty companies will deny your claim if they think the appliance broke because you didn't maintain it. They won't cover existing conditions. If the seller knew the furnace was broken before you bought the house, the warranty won't pay for it. They also limit how much they will pay out per year for certain items.
Is it right for you?
A home warranty makes a lot of sense if you buy an older home and don't have a large emergency fund. It protects your budget from sudden, massive repair bills. It's also helpful if you aren't handy and don't want to hunt for local repair companies yourself. The warranty company picks the contractor for you.
It might not be worth the cost if your home is brand new. New appliances already come with manufacturer warranties. A home warranty is also frustrating if you prefer to hire your own trusted contractors. You have to use the company the warranty provider sends. They might not be the fastest or the best in your town, so you trade control for convenience.
