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A home warranty in its most simple form is a type of cover that is paid annually and covers replacements and repairs for items in your house including appliances and mechanical systems. You will usually pay an annual fee between $250 and $600 and on top of that, you’ll pay a fee every time someone comes to your house to look at an issue.

When it’s a buyer’s market, sellers will sometimes offer home warranties included in the cost of sale. This is offered as an incentive for the buyers but also is good for the sellers because it gives the buyer someone to contact if something goes wrong after the sale. If it’s a seller’s market, then the home warranty is usually not offered and is skipped alongside the home inspections.

Before you sign up for a home warranty it’s important to read the terms and conditions to make sure you understand what you’re getting.

What Are Home Warranties?

A home warranty is similar to any type of warranty and gives you a way to replace or repair something in your house without having to buy a new one. Normal warranties will cover a single item, whereas a home warranty will cover a range of different items.,

  • If you buy a system plan then it will cover the mechanical systems in your house including electrical, cooling, heating, and plumbing
  • An appliance plan covers all major appliances like the oven, dishwasher, and washing machine
  • If you buy a combination plan, it will include all major appliances and the mechanical system

If your house has additional features that aren’t standard like a swimming pool or ground sprinkler, you might need to get an additional warranty.

Sometimes these items aren’t even covered by a home warranty, so it’s important to check before you buy.

If you’re buying a new build then you often get a warranty from the builder of the property. It’s important to look closely at the difference between a home warranty and a builder warranty because coverage normally starts when you close on the property.

If you already own the home and are taking out a home warranty then coverage usually starts 30 days after you take out the plan. This is to discourage home buyers from taking out a plan and immediately claiming something that was already broken.

How Do Home Warranties Work?

If something in your house needs maintenance or it doesn’t work anymore, then you’ll contact your home warranty provider. Each company works with a range of affiliated local technicians and the nearest one will come to your home to see what the problem is.

At this point, they will decide whether it needs a repair or the item needs to be replaced completely. They’ll also let you know whether this repair is covered by the warranty. If the repair is covered by the warranty, then they’ll go ahead and make the fix.

If the issue isn’t covered by your home warranty plan, then you will need to pay for the cost of replacement. Your claim might also be rejected by your provider and then you’ll also need to cover the cost.

Regardless of whether the issue is covered, you’ll still have to pay for the in-house visit from the technician.

What’s The Difference Between Home Insurance And A Home Warranty?

Homeowners’ insurance and a home warranty are two different things. When you’re buying a property you have to have homeowners insurance to get a mortgage. A home warranty is completely optional on the other hand. The biggest difference is what they cover and how they work.

We covered briefly above the fact that a home warranty covers the replacement and repair of systems, appliances, and items in your home. You might not know when your fridge needs to be repaired, but eventually, it will need to be. This can be anticipated and so is not a big surprise.

The big difference with homeowners insurance is that it covers the unexpected losses that arise. It won’t cover the cost of replacing the major systems in your home but could replace the cost of your appliances if they’re damaged in a flood or fire.

When you take out homeowners insurance, you’ll have to cover a deductible before your insurance claims are paid. Home warranties do not have deductibles.

How Much Will A Home Warranty Cost?

Generally, a home warranty will cost between $300 and $600 per year. Depending on which plan you decide to get will depend on the price.

If you go for a fancier plan that covers more items, the cost will increase. The cost also depends on where you live.

It’s always a good idea to shop around for the best deal on home warranties.

You won’t pay for the actual repairs, but you will pay every time a trace person comes out to the house. You’ll have to pay for this regardless of whether they actually do anything. If you need more than one person to come to the house, you often end up paying more. Depending on which plan you’re on, this fee could range anywhere from $60 to $120.

When shopping for a plan you should keep this cost in mind. Another factor that you should consider is how much the plan will actually pay out each year. Depending on which plan you get, there will be a cap on how much can be paid out. This means that if both your fridge and boiler break, they might not pay the cost for both of them.

Should I Get A Home Warranty For My House?

It depends on what you think might break each year. If your air conditioner breaks and it will definitely be cheaper to have it repaired if you have a home warranty. If you don’t use the home warranty in a year, then you might be $600 out of pocket with nothing to show for it.

However – the following year the fridge and oven might break down which will be way more than the money you paid the previous year. Your claim also might be denied – so even if you have covered it might not pay out.

Another option you have is to set aside money each month it goes into a separate savings pot. Instead of paying the insurance company, you keep this money for yourself and use it to pay if something breaks down.

Richard Allan

Richard Allan

Richard Allan is the founder of Capital Bean and a passionate writer about personal finance, budgeting and how to save money at home and work.

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