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Home warranties pick up where insurance leaves off

By Insure.com
Last updated March 10, 2010

Home warranties are designed to protect homeowners from repair costs that aren't covered by home insurance. Home warranties cover such things as the plumbing, heating, air conditioning and major appliances.

While home warranties aren't necessary for every homeowner, they can help sell a home by providing the buyer with a protection against the unknown.

Generally, home warranties cover malfunctions of major appliances such as washers, dryers, ovens and refrigerators.  They also cover problems with the electrical system, ductwork, plumbing and heating and air-conditioning. In some cases, for additional fees, the warranty may extend to garbage disposals, doorbells, ceiling fans, garage-door openers, water softeners, trash compactors and built-in microwaves. However, they won’t cover pre-existing problems with your appliances or structures.

The National Association of Realtors describes home warranties as service contracts, typically lasting one year, that cover the repair or replacement of major home systems and appliances that break down due to normal wear and tear. Home warranties don't overlap or replace the homeowners insurance policy. Think of it as a cause and effect relationship: If a hot water heater burst and destroyed a wall in your home, the warranty would repair the water heater and your insurance would pay to fix the wall.

Similarly, if your refrigerator was to stop working while you’re on vacation, there could be spoilage, leakage or floor damage. Your homeowners insurance might pay for the damage to the linoleum, while the home warranty would cover the fridge.

The age of your home usually doesn’t matter where warranty coverage is concerned.  You should be able to obtain a home warranty as long the covered items are in good working order at the start of the contract.

Home warranties cost about $250 to $400 a year, plus $35 to $50 per service call. If your home is in good condition, the expense might not be necessary. On the other hand, when you do need to pay for repairs in an aging home, the costs can mount quickly.

Making a warranty claim

Making a claim on a home warranty is straightforward. You're generally given a toll-free number to call. After the warranty company verifies your coverage, the company will dispatch an independent trade contractor to your home. The contractor diagnoses the problem and then repairs or replaces as items as necessary. You only pay a small service fee. The contractor then bills the home warranty company for the remaining charges.

Generally, home warranty companies don't limit the number of claims you can make, but you will have to pay for each service call. Plus, there may be a dollar limit on repairs to certain items. For example, your contract may spell out a $1,500 limit for hot water heater repairs.

Check out the company before you buy

A home warranty is only as secure as the company that offers it. Find out as much as you can about the reputation and track record of any home warranty company. Realtors frequently work with home warranty companies and can recommend firms with a proven track record and financial stability. You can also ask if the company is a member of a professional association that monitors business practices. It’s also a good idea to check with the Better Business Bureau or your state’s department of consumer protection.

Each home warranty plan is unique in scope and service. It offers specific coverage, limits and exclusions. Review home warranty contracts carefully before you buy.

Here’s some advice for buying a home warranty:

• Always understand the length of the contract and when it begins.
• Look over the contract to understand what is, and is not, covered. Some contracts will list specifically what is covered.
• Look over the procedures for reporting a claim. Some contracts require that customers call a claims number prior to ordering repairs to the product under warranty. Things will go more smoothly that way.