Jun 15, 2016

What is a Home Warranty?

Young family excited about selling their home
A home is the largest purchase most people make in a lifetime and naturally homeowners want to protect that investment. Most homeowners know, things can break, often at inopportune times, so it’s important to know what is a home warranty and if you should buy one.

What is a Home Warranty?

A home warranty is a separate contract covering costly home repairs and replacements due to normal wear and tear, usually for a period of one year. Unlike an insurance policy that protects you from loss, a home warranty service contract provides service, repair or replacement on a home’s appliances and major systems, such as HVAC and electric. In short, home warranties cover the gap between your home insurance deductible which is generally 1-2% of your home value.  If you don’t have a chunk of change sitting around to fix an air conditioning unit or a refrigerator, for example, this is where a home warranty can give you great peace of mind.

Should I Get a Home Warranty?

Many homeowners ask themselves if they should get a home warranty as it’s meant to protect against expensive, unforeseen repair bills.  For a homeowner who doesn’t have an emergency fund or who wants to protect their emergency fund, a home warranty can be a great buffer.  A home warranty also makes sense for those who aren’t handy or don’t have the time to find a contractor to fix the problem.  If the homeowner likes high-end appliances and warranty can provide additional assurance.

A warranty can be perfect for someone who has just depleted their savings to buy a home and wants to avoid any additional major expenses. It also provides reassurance to a homebuyer who has limited information about how well the home’s components have been maintained or how well a home has been built.   For home sellers, offering the buyer a one-year home warranty with the home purchase may provide a measure of protection against buyer complaints.

A home warranty covers the repairs or replacement of the items that most frequently break down. However, not all objects are created equal when it comes to the need for a home warranty. Brandon Bohannan, FIXD Co-founder says a good rule of thumb is to have coverage for any items that are utilized every day, constantly running and used for your household to function.  Examples include a refrigerator, HVAC, water heater, washing machines, and dishwashers. Bohannan says based on his years in the industry a homeowner can expect a 38% chance that something will go wrong with these items.

Keep in mind, home warranties cover many of your home’s crucial systems and appliances, but they must be in working order before the contract is entered into with the warranty company. When you buy a home warranty, consider premium and optional coverage to customize the plan to fit your needs.

Comparing Home Warranties

First, it’s important to understand a home service contract and what it covers before you purchase.  Read what’s covered and the exclusions. Contract costs and coverage can vary widely, so always compare before purchasing.

Here are some things to consider when choosing your Home Warranty provider:

  • Not all home warranty companies are created equal. Make sure the company hires QUALITY repair service workers. Providing competent contractors for plan holders should be a priority, which includes screening during the application process and a background check.
  • Does the home warranty provider have rated insurance carriers standing behind your agreement?
  • Does the home warranty company negotiate the best prices for consumers when something is not covered?
  • Does the home warranty provider offer a satisfaction guarantee?
  • Does the provider also schedule non-warranty home services at a reduced cost?
  •  Does the provider reduce exclusions by covering a wider range of claims?
  •  Does the provider offer on-demand scheduling?