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5 Things Home Warranties Don't Cover

A warranty can offer peace of mind to a home buyer, but it doesn't cover every repair

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If you've bought a house recently, the seller may have given you a home warranty to sweeten the deal. Or you may have bought a home warranty on your own, hoping to save yourself a big bill if, say, the dishwasher stops washing dishes.

A home warranty – or home service contract, as the industry prefers to call it – can save you the hassle of finding a qualified repairman as well as the budget-busting cost of some common home repairs. “We're providing a service for a homeowner on a budget,” says Art Chartrand, executive director of the National Home Service Contract Association. “We're not offering something for free, and we're not magicians, but we can send a prescreened contractor to your home to get you back up and running."

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Still, home warranties are not insurance, which protects you against damage from certain perils, such as fire and theft. Instead, they are service contracts, which means they cover only what's in the contract. Anything else is up to you. The first rule of any contract: Read it carefully before you sign it.

Generally speaking, a home warranty contract will cover most appliances that fail because of normal wear and tear. Typically, these will include kitchen appliances, water heaters, washers and dryers. If you own a home with older appliances, a home warranty can save you money in costly repairs. But there are a lot of things that a home warranty often won't cover. Among those:

1. Anything that fails within the first 30 days after signing.

Although a home warranty isn't insurance, it does borrow a few things from the insurance industry, and one of them is the homeowner's version of a preexisting condition. If your furnace wasn't working when you signed the contract – or dies soon after – the home warranty often won't cover fixing it.

2. Anything that fails due to something aside from normal wear and tear.

If your faucet stops working because a washer wears out, your home warranty should cover the repair. If your faucet fails because your child filled it with putty, your warranty probably won't.

Similarly, most contracts won't cover damage caused if your washer spews water onto the floor and into the basement. You'd have to see if your homeowners’ insurance covers that (which it probably would).

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3. Items not covered in the terms of the contract.

This is where reading the contract is essential. Many times, a refrigerator is an optional coverage, which means you pay more for it. Air conditioners, pool equipment, washers and dryers are often optional as well. Sometimes even parts within an appliance, such as an ice maker within a refrigerator, aren't covered. If you don't opt for the coverage, you don't get it.

4. Items that were not installed properly.

If you discover that your dishwasher was plugged into an extension cord running behind the counter, it may not be covered under the warranty, since the installation was done incorrectly.

5. Windows, walls, doors and roofs.

Normally, these fall under homeowners’ insurance. A contract may fix a leak in your roof, but it probably won't replace the roof. If your home has an automatic garage door opener, be sure to ask what parts of the door the warranty covers.

Home warranty fees and costs

The more options you add, the more your warranty will cost. (Looked at another way, the lower the cost, the less likely it is that your warranty will cover things you want replaced.) According to HomeAdvisor, a website that connects homeowners to service providers, you can spend between $219 and $1,745 for a home warranty. The average home warranty costs $976 per year.

Although you can buy a warranty a year at a time, some people prefer to pay monthly, which can run you from $20 to $75 a month. You'll also have to pay a service charge of $75 to $125 each time a technician comes to the house. And many warranties cap expenses: $750 for plumbing repairs, for example, and $2,000 for air-conditioning units.

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Before you buy a home warranty

Did we mention that you should read the contract carefully? You should, because complaints from homeowners about home warranties are common enough that several state and federal agencies have entire sections of their web pages devoted to caveats about home warranties.

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For example, the District of Columbia's attorney general warns that “home warranties probably do not cover as much as you may think they do. Home warranties can have limited coverage, and might exclude kitchen appliances, water heaters, plumbing, furnaces and other major appliances.”

The Federal Trade Commission notes that the warranty company may consider a repair a better option than replacing your appliance. You may disagree, but it's generally up to the warranty company. Other contracts may impose annoying conditions, such as requiring you to mail parts to a factory for service or returning the item in its original carton.

You should also check the company carefully. The Better Business Bureau is a good place to start. Your mortgage lender, such as Quicken Loans, may also be able to recommend a home warranty company. But beware of online consumer recommendations for home warranty companies; they may come from the companies themselves.

John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.

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