A home warranty is a service agreement that covers you in case major appliances or systems in your home breakdown. It has a pre-set contract length and is not the same as home insurance.

Buying a new built or pre-owned home is super exciting.  

However, figuring out what a home warranty is and how they work can be confusing.

But what if I told you that: 

what is a home warranty

Once you understand how they work, home warranties are very simple to understand and easy to purchase.

In this post today I will go over how home warranties work, who should purchase them, and the different costs associated with purchasing one. 

​In This Article

What Is A Home Warranty Plan

What is home warranty insurance? Is it insurance for your house? How is it the same as or different from a homeowner’s insurance policy?

Maybe you first heard about home warranties when you were looking to buy a home. 

But here’s the thing: 

If you didn’t have a clear understanding of what a home warranty is, it probably wasn’t a compelling selling point at that time.

Even if the home you purchased did not come with a home warranty, you should consider purchasing one.

A home warranty is a service agreement that provides you with coverage for regular wear and tears on the systems and appliances in your home.

When something breaks, the home warranty company will send out a contracted professional who can diagnose and repair the problem.

How Does A Home Warranty Work?

Most home warranties work in the same way.

  • After selecting the plan that is best for you, you will pay an annual or monthly premium.
  • When something breaks down, you file a claim with the home warranty insurance company. You will need your home warranty policy number to file a claim.
  • The home warranty company will call one of their contractors and assign them your claim. The service person will schedule a time to come to your home.
  • When the contractor arrives, you pay a service fee that ranges from $50 to $125, depending on the company and your plan. The contractor will fix the problem.
  • If your system or appliance needs to be replaced, that will go through the claims process, and the home warranty company will determine what to cover.

What Does A Home Warranty Cover?

You might be wondering what a home warranty will cover and if you need one. Home warranties range from very basic to comprehensive.

The most straightforward home warranties cover a handful of main appliances, such as your washing machine, your dishwasher, and your garbage disposal.

More comprehensive policies might include coverage for the systems in your house, such as components of your HVAC, your plumbing, and electrical systems.

It is crucial to carefully read through the fine print in the plans you are considering.

Knowing and understanding the fine print will ensure that you know what is covered and what is not.

You might want to add additional coverage (if it is available) for some of the commonly excluded items, such as spas, pools, and ice-makers.

Home Warranty vs. Home Insurance

Now here's the thing, both of these products have :

  • Deductibles
  • Premiums    
  • The requirement to file a claim
  • Important fine print  

Outside of the above items, home warranty policies and home insurance have almost nothing in common and deal with two different situations.

A home insurance policy offers coverage for catastrophes, such as fires or lightning. 

If something happens to your home, your policy will cover the loss.

If you need a mortgage, you will have to purchase home insurance because lenders require it to protect their interest in your home.

When you buy a home, the cost of home insurance premiums for the first year may be part of your closing costs. After that, you may pay monthly or annually.

Your home insurance costs can fluctuate based on property value, crime risk, and environmental risk, among other things.

In contrast, a home warranty is not an insurance policy. It is a service contract that covers appliances, house systems, and sometimes the roof of your home.

Home warranty policies have different options for coverage, so you can customize what you want to include in your plan.

Like home insurance, you can pay monthly or annually and the coverage you want will determine the cost of the home warranty plan.

how does a home warranty work

When Should You Purchase A Home Warranty?

Home warranties are often packaged with a home sale. Such a bundle offers reassurance in case something happens to the house after you have purchased it, especially if it is an older home.

When a home warranty is for an older house, the contract is usually for one year. After a year, you can choose to renew the policy if you want.

Consider a home warranty when buying a new house. New home-builders may offer a warranty that covers up to 10 years for structural components, such as Sheetrock, flooring, and roofs.

How Much Does A Home Warranty Cost?

The average cost for a home warranty plan ranges from $350 to $600. What you pay for your home warranty will vary based on several factors.

What type of home warranty do you want?  

Most home warranty companies offer several home warranty plans, and that means that your cost depends on the coverage you select.

The most basic plan might only cover a handful of major appliances. A more comprehensive plan could include house systems.  

What is the company's service call fee?  

Service call fees are similar to a deductible and can range from $50 to $125. Some companies only charge the fee once if you call with the same issue within a specific time frame.

What type of home do you live in? 

Do you live in a condo or a mobile home? Are you purchasing a townhouse or a duplex? The type of property that you own will impact the cost of your home warranty.

Do you want coverage for add-ons?  

Maybe you would like to have your roof or your garage door opener covered. That could cost you more. Including additional items in your plan will cost extra.

​Taking Action

Home warranties can be helpful to your budget and peace of mind in the right situation. 

A home warranty is good for taking care of your home, especially if you are not naturally handy or mechanical.

In 2020, a home warranty might be right for you if you are buying an older home. They are simple to use and offer a network of professionals to help you with your home repair needs.

Just make sure that you read the fine print, know what exclusions apply, and what your plan covers. 

If you have any questions about home warranties and how they work, please leave a comment below or get the process started by clicking here or one of the above buttons. 

Sa El

About the author

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 11 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. He is also an Official Member of the Forbes Finance Council, a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.

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