Home warranty companies often use the sales pitch that you wouldn't buy a new car without a warranty, so why would you buy a new house without one? Yet many home warranties are more like buying a car and only getting a warranty on the power train. Sure, it covers the main mechanics, but it still leaves out a lot of things that can go wrong. Or as Donna Johnsrud, a Dallas-Fort Worth, Texas, real estate agent, puts it, "A lot of people think a home warranty will cover everything that could possibly go wrong with a house when there are actually a lot of exclusions. It's important to read the fine print."
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What's Usually Covered
Most home warranty providers offer a basic plan in the $300 to $400 range. They also offer premium packages and add-ons that can increase that number to $500 or as much as $1,000. Warranty prices also differ based on the size and type of home (i.e., duplex, condo, single-family, etc.). And there are slight pricing variations by state. In addition to premiums, under most plans the homeowner is responsible for a copayment averaging around $60 for service calls and repairs.
Basic plans generally cover the main mechanical systems of the house, including:
- heating and air conditioning systems and ductwork
- plumbing systems
- electrical wiring/receptacles/switches
They also generally cover some appliances, including:
- water heater
- garbage disposal
- built-in microwave
Limitations and Exclusions
Many repairs (e.g., plumbing, HVAC, electrical, appliances, etc.) have a limit that may not be enough to cover the cost. For example, many warranties cap the cost to diagnose, repair and/or replace an HVAC system at $1,500 per contract. However, the average cost of replacing a central air conditioning system or a gas furnace is around $5,000, including labor, according to HomeOwnerIdeas.com.
Policies also often cap plumbing and electrical repairs at $1,000 or so per contract (for each type of service). If you've hired a plumber or electrician recently for a major repair job, you know that $1,000 won't buy you much.
When costs exceed the limit, there are a number of ways the repair can be handled, according to Sallie Griffith, the regional accounts manager for OneGuard Home Warranties.
One option is that the warranty company will pay its portion and when the work is complete, the homeowner pays the remainder. Another is that the consumer can "cash out" and receive a check from the warranty provider for the full amount of the coverage, and then hire a contractor to do the work.
Griffith usually recommends the first option, because the warranty company gets a wholesale discount. So, consumers will often pay more for the repair if they hire their own contractor. On occasion, particularly with appliances, a homeowner may be able to find a lower price on a replacement appliance on sale, and in that instance, the warranty company will usually encourage the homeowner to cash out and purchase the appliance.
If a repair exceeds the limit and the homeowner is unable to pay the difference, the warranty company may be able to work out a payment plan between the contractor and homeowner so that the company pays its portion up front and the homeowner makes payments on the balance over time.
Even when a repair comes in under the limits of the warranty, it still might not be covered. For example, preexisting conditions are not covered. If a defect was detectable prior to the service period — even if you didn't know about it — it is not covered. If you use part of your residence as a home business, that area may not be covered under some plans. Items under a manufacturer's warranty are not covered. Components must fail on their own accord, not because of misuse, abuse, structural shifts/changes, freezing, electric surges, water damage, lightning, pest damage, mold, mildew, rot, fungus or acts of God. And you still have to perform routine maintenance yourself. So, for example, if you have a problem with your HVAC system and your filters are clogged, the warranty company may not cover the repair.