Basic systems, like HVAC, electrical and plumbing are covered by home warranties.
Although home warranties are often confused with homeowners insurance, home warranties begin to provide service where homeowners insurance policy leaves off. A home warranty covers major appliances like a refrigerator or dishwasher as well as your furnace, air conditioner, plumbing and electrical systems. Basic coverage and prices vary by company, but all work in a similar way. You pay an annual premium of a few hundred dollars, then call the warranty company when a covered problem arises. For a flat service fee of $50 to $100, a professional technician repairs the problem.
Homeowner Insurance vs. Home Warranty
A homeowner insurance policy, in conjunction with hazard coverage, insures property against damage from natural disasters like fire, wind and flood. It does not cover repair charges, maintenance or replacement costs for major appliances, HVAC, electrical or plumbing systems. Lenders can require homeowner insurance if the property is financed, but people purchase a home warranty for convenience and savings on the cost of repairing or replacing appliances.
The Need for a Home Warranty
Owners of newly built homes are usually covered for one to five years with a builder's warranty or appliance manufacturer warranties. Carefully read the documents that come with your new home to understand the extent and time limitations of your coverage. Owners of homes over five years old can benefit from home warranty coverage as appliances begin to need repair. Landlords who rent out single family homes can benefit from the convenience of not having to respond to repair calls at odd hours and can save on the replacement of appliances beyond repair.
Potentially Negative Aspects of Home Warranties
Home warranty companies are not regulated the same in each state. Some states, such as California, highly regulate home warranty companies activities, while other states do not. If you are considering purchasing a home warranty, check which state agency monitors home warranty companies in your state. Check also with your local Better Business Bureau. Many companies operate in several states, which may contribute to their stability. You may not have control over the contractor chosen to do the work on your house, and the warranty companies lean toward repairing appliances over replacing them.
The Growing Popularity of Home Warranties
According to the Home Warranty Association of California (HWAC), a one-year warranty is included in the sale of nine out of 10 homes in the state. This is up from less than one out of 10 home sales in 1970. Sellers and real estate brokers often purchase the home warranty to reduce their liability should something go wrong with the home during the year after the sale. The HWAC reports that for every home warranty issued in California, approximately two claims occur each year. This claim ratio is more frequent than automobile, home or life insurance claims.
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