A home warranty is a contract that covers maintaining household systems or appliances for a set period. It differs from homeowners’ insurance, which covers the loss of the home due to fire or certain other natural disasters. A home warranty focuses on keeping household systems functional, unlike homeowners’ insurance, which protects against property loss.
How Does a Home Warranty Work?
When an appliance or system is damaged the homeowner contacts the home warranty provider. The warranty provider then requests services from one of its partnered providers, such as plumbing or electrical contractors. The contractor assesses the damage and provides a report to the warranty company, which confirms if the policyholder’s contract covers the appliance or system for the assessed damage. If approved, the contractor is employed to repair or replace the system.
What Does a Home Warranty Cover?
A home warranty plan usually covers major appliances such as water heaters, stoves, and refrigerators, as well as systems such as HVAC, plumbing, and electrical. However, it is important to read the fine print of the warranty document to understand coverages and exclusions. Additional coverage for specific home features may be available for an extra premium.
Warranty vs.Insurance
While a home warranty and home insurance may seem similar, they offer different services. Home warranties focus on maintaining the functionality of household systems. While home insurance covers damage to or loss of the home itself due to fire or certain other natural disasters.
Is a Home Warranty Right for You?
Whether or not to purchase a home warranty depends on various factors, such as the age of the appliances in your home and your willingness to cover out-of-pocket expenses.
It is worth considering, especially when buying an older home with potentially outdated appliances.
According to Consumer Affairs, the average cost for a home warranty basic coverage ranges between $432 to $816 annually, depending on the products and additional coverage added to the policy. Additionally, there is usually a service fee, often called a “service call fee” or a “trade call fee.” Those fees range between $55 and $150 for each repair or replacement. As Consumer Affairs notes, “The costs of these fees depend on various factors. The fee can range between $55 and $150. Most policies include the clause that if a repair or replacement cost is less than the fee, the homeowner pays the lesser amount.”
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