What Are Home Warranties and How Do They Work?

Question for you homeowners: How many times have you gotten a phone call from an unrecognized number, answered it only to hear a robotic tone advise you that your home warranty is about to expire? How often have you gone to your mailbox to find an envelope with no discernible return address – if there is one – only to find you have literal spam snail mail in your hand?

Some folks will find themselves wondering if they have a home warranty. Others may ask what a home warranty is and how does one work? What is the cost involved in obtaining and keeping one active? What about home insurance; isn’t that enough? More importantly, given that most of our senior population lives on a fixed income, the question is: How expensive is it to obtain a home warranty? Is this something worth the aggravation of having an additional bill to pay every month?

Today, we will answer those questions and more.

What is a home warranty and how different is it from home insurance?

Much like a warranty you would obtain for any appliance or gadget a home warranty offers repairs to covered items, such as electrical systems, HVAC, and plumbing services an at a discount, but will not cover pre-existing issues. This is basically a service contract one signs for a specified amount of time but can be renewed.

Whereas home insurance has no term limits as long as you continue paying premiums, this is a plan that will protect your personal belongings and your home in the case of a fire, theft or other specification; not including items listed above.

How does a home warranty work?

Home warranties work just like any other warranty you may obtain when purchasing any big-ticket item. When searching for a home warranty, be sure to search for a company that offers a variety of plans you can personalize. Below are some of the items covered with a home warranty:

1. Oven and range
2. Air conditioners and air conditioning systems
3. Ductwork
4. Doorbells
5. Furnace
6. Water Heater
7. Plumbing
8. Ceiling fans
9. Garbage Disposals
10. Kitchen Appliances
11. Washer/Dryer

How expensive is it to obtain a home warranty?

Depending upon the coverage you need or choose to purchase, and taking into consideration what the deductibles will be for your plan, most home warranties are not all that expensive, between $350 and $700 a year. This means paying between $30 to $125 a month in premiums. Some people opt to pay their plan annually and can be automatically renewed if one wishes.

In most cases, this expense is not tax deductible on a federal return, however if you have designated a part of your house as a home office, you may be able to deduct a portion of this cost. Check with your accountant for the rules in your state.

Are there any cons to having a home warranty?

Unfortunately, just like everything else, there are some cons to having a home warranty. Consider the following before purchasing a home warranty:

1. Some home warranty companies will place annual monetary limits on repairs.
2. There might be a service call fee with some companies that you will have to pay each time they come out.
3. A claim can be denied it the item being services has not been properly maintained.
4. Only the warranty company can decide whether to fix or replace an item.

Which is the best home warranty company to work with?

Everyone has different needs. Your home may be a new build with new appliances, or it’s an older home with older components. We can not tell you which home warranty company is better than any other, but we will list the top five rated by Forbes Advisor. Click on the link for the full list.

1. Select Home Warranty
   This company offers $100 off any plan, free roof coverage and two extra months free. Offers free quotes. 
   
2. Choice Home Warranty
   This company offers “flexible coverage at a great price,” high ratings and you will get a whole team assigned to your claim. 
   
3. American Home Shield
   Top ranked three years running, offers flexible plans and discounts for seasonal maintenance as well as for home services. 
   
4. Liberty Home Guard
   This company is currently offering $200 off your plan, two free months, live chat, they use vetted technicians and offer free but limited roof leak coverage.
   
5. Elite Home Warranty
   This company has a AAA+ rating with the BBB, they will work with any licensed technician in your area, they offer $150 off, two months free on any plan and has a U.S. based, 24/7 support line.

Are there any alternatives to purchasing a home warranty plan?

Some utility companies, i.e. water supply companies and gas and electric companies may offer their own plans for the repair or replacement of some home appliances which are less costly. These plans offer some protection because some protection is better than no protection.

For example, PSE&G offers its customers a plan called “Worry Free” where you would purchase a plan that covers specific items in your home like your water heater, oven, stove, dishwasher, washer/dryer for a small fee that is added on to your monthly bill.

Check with your utility company and ask whether they offer similar plans if you would like a home warranty plan but can’t immediately afford one.

Tips to keep in mind when thinking about obtaining a home warranty.

1. Always read the warranty thoroughly before you sign or purchase anything. Make sure you can add coverage if needed and be sure to get a receipt.
2. Keep a copy of the warranty in a safe place so that you can go back to if you have any questions.
3. Do your research. Make sure you are working with a company that is known for respecting their warranties and have a good reputation with regard to customer service.
4. Use your appliances only for what they were intended. If you have an item that requires maintenance, be sure you properly maintain your appliances and that you keep a record of the date that maintenance was performed.

Home warranties are sometimes offered at the time of the purchase of a home and usually expire at the end of one year. If you have an older home, a home warranty may be something to consider. But, if too pricey for you, check with your utility companies. They may offer plans that are similar to what home warranties offer for a more affordable price.