What is a Home Warranty?
A home warranty protects you from paying too much for repairs and replacements of major systems and appliances that may unexpectedly break down due to normal wear and tear.
Home warranty companies offer different policies with different coverage types. Items covered range from major systems like the electrical and heating systems, air conditioning, and plumbing, to important appliances like the range and oven, refrigerator, washing machine, and dryer. You can also purchase extra coverage for items that are not covered in the policy.
Home Warranty vs. Home Insurance
A home warranty is not to be confused with homeowner’s insurance and it shouldn’t be treated as an alternative for it.
Homeowner’s insurance protects your home and belongings against major damage, the kind that you would be hard-pressed to deal with on your own such as those that arise from fires, theft and other property crimes, water overflows, wind and hail, and so on.
A home warranty covers only the individual components inside your home that are included in your particular policy.
Benefits of Purchasing a Home Warranty
The biggest benefit that having a home warranty policy affords is the layer of protection that it provides against costly repairs and replacements.
When you have a home warranty in place, covered appliances and components that break down will get repaired by the home warranty company’s service provider. If it is unrepairable, the company can also pay for its replacement or installation as long as it’s covered by the warranty.
This is handy to have in place when you’re not sure how the components of the home you’re buying will hold up in the future. Or when you have a particular taste for high-end appliances and you want them to be protected.
This is also especially useful in the first year or so of homeownership, when you’re just getting settled and budget is still tight. If you don’t want to tap into your emergency reserves, a home warranty can be a great short-term solution for your needs.
While new homes regularly feature warranty coverage, existing homes won’t normally come with them. For sellers, offering a fully paid one-year warranty can be a cost-effective way of enticing buyers and adding value to the house they’re selling.
A 2014 survey conducted by American Home Shield, one of the largest home warranty providers in the nation, found that homes with warranties sell up to 11 days faster and for an average of $2,300 more than other homes without it.
Things to Consider
All things considered, it’s important to note that home warranties do have their downsides as well. Not all components and appliances are covered by a warranty, and there are specific conditions that need to be met in order for covered appliances to actually be covered.
A major requirement for coverage qualification is that the item you’re making a claim for needs to have been “properly maintained.” This can be a problem because in some cases the definition of proper maintenance is subjective, which can cause disagreements between warranty holders and the warranty company.
Depending on your needs, a home warranty can be a great way to protect yourself from costly repairs and replacements. Like all contracts, you should read and understand all the terms and conditions to determine whether or not the policy suits your particular situation.