What Is A Home Warranty? Home Warranty vs. Home Insurance

If you own your home you might have heard of something called a “home warranty.” Most of use are familiar with the concept of a warranty, but it’s normally on some sort of home good, like a washing machine, electric razor, or car, so the concept of a home warranty isn’t an obvious one.

With that in mind, let’s dive into home warranties and why you want to know what one is.

What Is A Home Warranty?

Simply put, a home warranty is a contract that a home owner signs with a third party that covers the items in ones home. This contract, usually a 1-year agreement, will pay the homeowner in the case that an appliance or larger system (like the air conditioning) were to fail during the life of the contract. The contract would cover the cost of repairs or replacement of the item in question.

A home warranty is sometimes referred to as an “HWA” or “home warranty agreement.”

What Is Covered By A Home Warranty?

This list will vary from contract to contract, and most home warranty companies allow for a rider that will add items that aren’t typically covered. Typical items covered under a home warranty are (in no particular order):

• Home Electric
  • Wiring
  • Connection with power lines
  • Fusebox
  • Alarm system
• Appliances
  • Washing machine
  • Dryer
  • Under the sink garbage disposal
  • Dishwasher
  • Oven
  • Range
  • Refrigerator
• Heating
  • Furnace
  • Thermostats
• Cooling
  • Air Conditioner
  • Ducting
  • Exhaust fan
• Plumbing
  • Hot water heater
  • Toilets
  • Drains (clogs)
  • Sump Pump
  • Shower head and valves
• Garage door opener
• Central vacuum system
• Drywall

This is just a typical list, so you’ll need to talk to a provider or review a contract in order to get specifics. Some items might need to specifically be mentioned added, like a whole-house generator, a hot tub, or the water pump connected to your well.

Home Warranty Cost

A home warranty can cost a range of prices, which will be dependent on the type, size, and location of your home. As such, it’s difficult to give a typical price, but you should expect to spend about $35 to $75 a month on the warranty. Here are some examples:

• A 2500 square feet, single-family home in New Jersey will cost about $45 a month or $540 a year

Home Warranty vs. Home Insurance

These two things might sound alike, but they are different in practice. Generally speaking, a home warranty is a nice-to-have while home insurance is a must-have (at least if you have a mortgage).

Home insurance will cover damage that is a result of fire, hurricanes, wind storms, flood, theft and similar incidents. A home warranty will cover the systems and appliances within the home. These might also be covered by home insurance under some circumstances, but often your deductible will be high enough that it won’t cover something like a simple dishwasher replace.

A home warranty will cover replacement of home systems and appliances based on wear-and-tear and similar normal usage where home insurance will not.

Is A Home Warranty Worth It?

This is, of course, the big question for most people and, unfortunately, something you can only answer for yourself. Typically, a home warranty will be useful if you have enough money to cover the cost of the warranty (say $50/month) but you are concerned with the potential of a major and/or unforeseen cost in the future.

For example, if you can afford a regular $50/month expense, but you wouldn’t be able to (or simply wouldn’t want to) have to spend $2000 to have an air conditioner unit fixed after it breaks during the first heatwave of the summer, then a home warranty could be a fit for you.

What goes along with a home warranty, of course, is dealing with an insurance-like company. This means that they will not simply send you money after you file a claim, rather there are forms, phone calls, and inspections that must be completed first. And you and the company might disagree on the outcome of an inspect or the route that needs to be taken after a problem occurs.

For example, in the event of that broken air conditioner, the home warranty company might recommend a repair but when happens if the unit breaks again? They might recommend another fix, while you’d simply like the unit replaced. This can be a stressful and time-consuming interaction, even with the best and most well-meaning of warranty companies (many of which are not universally lauded online).

Home warranties tend to get a bad wrap online — as you might as expect — because of these disagreement and the companies’ often opting for repairs that are done on-the-cheap with contractors who might not be available for days or even weeks. That said, they can serve a purpose if you are on a fixed budget and have a home full of older appliances.

Home Warranty When Selling Your Home

A home warranty can be used by a home owner, not just after buying the home but when selling a home as well. A home warranty can be purchased by the seller for the home buyer in the event that something were to happen to the home’s appliances or systems while the closing process is happening or for some time after the close.

For example the seller might include a home warranty in the price on house if the buyer complains that the appliances or say, a heating system, needs to be replaced. In order to avoid a long disagreement or ending the deal process, the seller can buy the home warranty for a fixed cost and provide it to the home buyer (or, more likely, credit the price of the warranty).

This transaction will give the seller a fixed and known cost with no future risk and no chance of, say, a lawsuit in the future. It will provide the buyer with some assurance that the items that concern them will be fixed or replaced if they were to fail within the warranty’s lifetime. The buyer would need to pay for any service calls or other fees associated with the warranties deductible, but after that they would have a limited cost.

In short, by purchasing a home warranty, both the seller and buyer have reduced the level of risk associated with the transaction and have been able to move on with their lives.

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