When buying a home, you might come across the term “home warranty.” It’s not the same thing as homeowner’s insurance, which is required.
So, what is it, and why might you want it? Continue reading to determine if a home warranty policy is right for you and your home.
Home warranty basics
Though different from homeowner’s insurance, a home warranty works in a similar buy-in to protect program. If a household system or appliance is broken, a home warranty is a contract that will cover the cost of fixing it.
You can sign up to purchase a home warranty from a specific home warranty provider company when buying a house. This contract is created for a set amount of time and covers the cost (or a portion of the cost) of maintenance for household systems or appliances.
There are a few times when buyers opt to get a home warranty. It’s often done when purchasing an older home, with many older appliances and less information on their systems. For example, it comes in handy if there isn’t any information on how old appliances are, and it’s unclear how much life they have left. It can also be common with new builds, as home warranty providers work closely with contractors.
Coverage for a home warranty averages between $350 to $600 a year and typically comes with a service fee for each item that needs to be fixed. This price is usually between $50 to $100 per item. Homeowners can also add extended coverage for additional items that aren’t included in the basic policy.
A home warranty can be used in place of hiring a handy-person in the future. Typically, services or replacement costs can add up quickly when things break or need repair. A warranty keeps that cost relatively low and removes the guesswork of hiring someone new.
Insurance vs. Warranty
While a home warranty contract and a homeowner’s insurance policy both offer protection, have premiums, claims, deductibles, and liabilities, they are not the same. In short, they provide different services of protection.
A home warranty maintains the functionality of the systems within the house—the things that can break, wear out, and be either fixed or replaced. It’s an optional add-on.
On the other hand, homeowner’s insurance is a required policy that covers the loss of the house and its contents—or damage—due to fire or other qualifying natural disasters.
How it works
Home warranty homeowners contact their provider as soon as an appliance breaks or is having an issue and file a claim. The provider will then call in one of their contracted services—such as a plumber or contractor—and send them over to assess and report the damage.
After the assessment, the home warranty company will look at the extent and causes of the damage and then confirm if the homeowner’s policy covers the repair. Upon approval, the warranty company will hire the contractor to fix or replace the broken system. The homeowner will just have to pay the per-item fee.
Sometimes after reviewing that damage report, the home warranty provider will reject the claim and deny coverage. This can happen for various reasons, such as:
- The damage was known about and existed before the start of the warranty coverage.
- The item has been poorly maintained, installed incorrectly, or misused.
If the policy is accepted and the repair or replacement costs more than the warranty contract limit, the homeowner must cover the gap.
Home warranty coverage
Though they differ slightly, a home warranty policy usually covers the major appliances in the home: refrigerators, ovens, water heaters. Sometimes, it also includes the house’s major systems, such as electrical, HVAC, and plumbing.
Because of the variations, it’s always a good idea to read the fine print and understand what is covered and what is excluded and would be an out-of-pocket cost.
Who qualifies?
You can purchase a home warranty when buying, selling, or building a house. They come in different types and for varying lengths of time. For example, home builders offer policies that cover the home’s structure for several years related to structural or electrical-specific issues.
When buying an older home, a home warranty can act as a selling point—it adds an extra layer of security for the buyer for the next year, and then they can decide whether or not to renew the contract.
Have any questions?
If you’d like to learn more about home warranties or buying a home, connect with the team at Sopris Realty today. Contact us online or give us a call at 970-945-7677.