Angie's LIST Guide to
Home warranties

A home warranty is often a feature in the sale of a home.  In that scenario, the seller typically pays a few hundred dollars for a one-year warranty covering the home's major fixtures such as the furnace, water heater and kitchen appliances.  This gives the buyer some protection during that first year of ownership  knowing that if something major breaks down it will be covered.  Many homeowners choose to continue paying an annual premium rather than risk bearing the full replacement cost of a major item.

Although technically not insurance, warranties are very similar in that the homeowner is paying an up-front fee to protect against a potentially huge replacement cost.  If nothing breaks during the coverage period, the customer may in hindsight feel the fee was a waste of money, but that's what managing risk is all about.  Are you financially prepared to replace major components as they are needed, or would you rather pay a set amount per year whether something breaks or not?

One important difference between insurance and a warranty is that the homeowner must go through the warranty company to arrange for service, and this can be another point where a customer might be dissatisfied.  Home warranty companies establish relationships with service providers in the areas for which they provide coverage.  So whether customers are satisfied with the warranty company depends in large part on whether they are satisfied with the repairmen whom the warranty company has hired.

While home warranty plans and homeowner’s insurance do not provide the same extent of coverage, providers are held to many of the same regulations and requirements. Home warranty companies are governed by the respective state’s "Office of Insurance Regulation " (the name may vary from state to state). This state agency is responsible for licensing the entity, examines their company for compliance of applicable laws regarding home warranty services and monitors the financial condition of the company for the protection of their clients. When problems between a specific home warranty company and its client does occur, the Office of Insurance Regulation would make a final ruling on the matter.

What's covered?

Most home warranty companies offer a variety of plans, each providing different levels of coverage, so be sure to read the details of any contract before buying. Even if you choose to renew the contract from year-to-year, double-check the details of your plan because coverage can change annually. Here is a general idea of what a homeowner can expect to find in each tier of service:

BASIC COVERAGE

• Plumbing systems
• Range/oven
• Dishwasher
• Garbage disposal
• Exhaust fans
• Sump pump
• Water heater
• Ceiling fans
• Heating and electrical system components
• Built-in microwave
• Whirlpool tub 

ENHANCED COVERAGE

• A/C
• Washer/dryer
• Refrigerator
• Garage door opener

OPTIONAL ITEMS

• Pool
• Spa
• Well pump
• Septic system
• Standalone freezer
• Central vacuum

The average cost of a basic coverage plan ranges from $350 to $500 a year, with the cost of an enhanced plan adding $100 to $300. Prices reflect not only coverage, but also a company's loss history, which is determined by how often an item breaks down and the cost to repair it. Some home warranty companies offer additional coverage for certain items, such as a well pump or pool, for an extra fee. Regardless of the type of plan, homeowners typically pay an additional service fee ranging from $50 to $75 for each repair job.

The majority of home mortgage companies have a set price for their basic home warranty plans that they offer. The type of housing such as townhouse, condominium, single-family residential, duplex or apartment often determines the set cost of the home warranty coverage. When homes are over 5,000 square feet, the costs for home warranty coverage can be increased. This is also true when the home is newly constructed versus a pre-existing home over five years old.

While detached garages are generally covered under the basic home warranty plans that are offered, most separate buildings on the premises are not. Extended home warranty plans are available at additional costs for these building structures.

Costs for home warranty plans are paid upfront before the coverage goes into effect. Some companies offer their clients the ability to make payments on their home warranty plans if it helps to secure the sale or they have a long standing with the client. Some annual membership fees and service call charges may be required for additional costs depending on the home warranty company that the individual hires.