Home warranty plans help protect your investment and your wallet. If you’re building a new home, the builder may have this covered. Otherwise, you’ll have to do the legwork to find a plan that suits your needs and your budget. Keep reading to learn more about home warranties, how they work, what they cover, and what to expect when filing a claim.
How do home warranties work?
These plans are designed to cover the cost of repairs associated with appliances and major systems in your home. Home warranty plans can be customized to fit your needs. However, the premiums will depend on the type of plan you choose and the appliances and systems covered.
How long does a home warranty last?
When you choose a home warranty plan, it will come with a contract for a set period of time. In most cases, it lasts for one year. You’ll then be able to renew your plan annually to keep your coverage in tact. Cancellation policies will vary depending on what company you choose to work with.
How do I submit a claim?
The way in which you file claims will vary by company. In most instances, you’ll need to reach out via phone or submit a ticket online to report the issue. Next, the insurer will set up an appointment for a service provider to examine the issue and make repairs.
If they’re unable to repair the appliance or system, it could be replaced at no additional charge to you. (Note: this also varies by plan).
Depending on your contract, you may be responsible for covering a percentage of the cost of the service call, usually in the form of a flat (or trade call) fee. This amount should be listed, by appliance or system and repair type, in the original agreement.
What do home warranties cover?
Most home warranty plans include coverage options for:
- Air conditioning systems
- Heating systems and furnaces
- Doorbells and ceiling fans
- Electrical systems
- Kitchen appliances, including built-in microwave, dishwasher, refrigerator, garbage disposal, range and over
- Hot water heaters
- Plumbing systems
- Telephone wiring
- Washers and dryers
Because coverages vary by plan, it’s best to check plan details to determine which systems and appliances are covered, and which aren’t.
Quick note: if you have more than one of a particular appliance, like a built-in kitchen on your patio, it may be necessary to purchase supplemental coverage.
What’s not covered under home warranty plans?
It depends on the plan you select. However, most home warranty plans don’t cover pre-existing issues or malfunctioning systems or appliances that weren’t installed correctly. Your claim may also be denied if the issue is related to poor maintenance.
Your home’s foundation is another example of something that’s not covered under typical home warranty plans. This is considered structural and won’t fall into a covered category such as home systems or appliances. If your home is new construction, you may qualify for a builder’s warranty, which is more likely to cover any future foundation issues.
Are home warranty plans expensive?
On average, home warranty plans range between $300 and $600 for a year of coverage. Payments are typically due monthly or annually.
Are home warranties tax deductible?
Although there are several home-related tax deductions available, a home warranty is not one of them, at least not for your primary residence. If you use a home office or rent out a space for business purposes, you can deduct the relevant portion of a home warranty plan. However, you can’t deduct the entire plan if you have a home office.
The IRS generally requires you to calculate the percentage of space in your home dedicated solely as your home office. You can apply that same percentage of your home warranty cost as a business expense deduction. So if your office is 200 square feet in a 2,000 square foot home, you could deduct 10% of your home warranty.
Isn’t it cheaper to just use homeowner’s insurance?
Not necessarily. Homeowners insurance doesn’t cover issues related to appliances and systems from wear and tear. Their coverage is applicable to damages sustained from natural disasters, inclement weather, fires, burglary, and theft.
Quick note: if you’re moving into a new home, the major systems and appliances may be covered under the manufacturer’s warranty. Reach out to the builder to inquire.
Are home warranty and home insurance the same thing?
A home warranty and homeowner’s insurance policy are actually two separate products. A home warranty allows for the servicing and replacing of home systems like electric, plumbing, and appliances. Homeowner’s insurance, on the other hand, protects against damage done to your home.
For example, if you have a sudden leak that floods your first floor, your home insurance policy would most likely cover the cleanup and replacement of damaged flooring. But if your dishwasher stops working, your insurance wouldn’t cover it — but a home warranty probably would.
Another major difference is that a home warranty is elective coverage. Homeowners insurance is required if you take out a mortgage on your home. If you don’t have it, the lender won’t approve your application. The fee is usually annual, but the monthly equivalent will be included in your mortgage payment and put into an escrow account by your loan servicer.
Your servicer is generally in charge of making the annual payment on your homeowner’s insurance, although you still have control over the policy and company you choose to work with. With a home warranty, you handle all aspects of the process, including making payments directly on your own.
How do I purchase a home warranty plan?
You’ll want to shop around to compile a list of options. Start your search online or ask your realtor, family, or friends that are homeowners and currently have home warranty plans for recommendations.
Once you’ve selected a provider that suits your needs, apply for coverage and remit payment when your application is approved. The plan will be valid for a year and can be renewed when it expires. Also, keep in mind that an inspection probably won’t be necessary to secure coverage.
Is a home warranty part of closing costs?
You can include a home warranty as part of your buyer’s closing costs if you choose to purchase one at that time. In some cases, your real estate agent may be able to help negotiate a one-year home warranty paid by the seller, particularly if some of the appliances or other covered items are on the older side.
Just know that once the one-year contract is up, you’ll be responsible for renewing the warranty if you want to continue receiving coverage.
Can I purchase a home warranty after closing?
Yes, you can certainly purchase a home warranty at any point, no matter how long you’ve lived in the house. Pre-existing conditions won’t be covered, however. The sooner you can get your home under warranty, the sooner you can use those benefits when something starts to go wrong.
Of course, if you just bought a home that was newly constructed or recently renovated, you may not be in such a hurry to put those new systems and appliances under warranty. It may make sense to wait to consider a home warranty in either of those situations.
Are home warranty plans transferable?
If you want to sell your home and your plan is still valid, you may be able to transfer it to the new owners. And even if you don’t have a home warranty plan and are looking to sell in the near future, securing a plan may be a worthwhile purchase to make your home more attractive to potential buyers.
How to Evaluate Home Warranty Plans
Before purchasing a plan, consider the following factors to find the best fit:
- Claims process: Is the process straightforward? How much time does it take to initiate a claim, and are there representatives standing by 24/7 to assist you?
- Coverages and exclusions: Does the provider offer coverage on all the major systems and appliances in your home, or will you have to purchase supplemental or upgraded coverage?
- Cost of premiums and trade fees: Is the monthly or annual premium similar to what you’d find from other providers? Are the trade fees affordable?
- The reputation of the provider: Is the home warranty provider accredited by the Better Business Bureau? What rating did they receive, and what are customers saying about them? You can also check with your state insurance commissioner to learn more about the insurance company you’re considering. (Unfortunately, some providers are shady and charge very low premiums, only to vanish into thin air when you contact them to file a claim).
Most importantly, don’t sign without reading the fine print to confirm that the terms of the actual plan documents are identical to the quote.
Coupled with routine maintenance, home warranty plans are well worth the investment. You can save yourself hundreds, if not thousands, on repairs should issues arise with your systems or appliances later on down the line.