A residential service contract (also known as a home warranty) is just that—a contract between the property owner and the contract issuer. And, as such, it is important to understand the terms of the contract, so that you know the coverage it provides. Therefore, the purpose of this article is to provide you with a basic understanding of home warranties.
What the home warranty typically covers
The standard home warranty provides coverage for the following systems: air conditioning (especially in the South and West), heating, plumbing, electrical, water heater, dishwasher, stove/oven/cooktop, garbage disposal and built-in microwave. The average price for one year of coverage is $375 to $425 with a trade call fee of $60 to $100. The property owner can buy optional coverage for items such as refrigerator, washer/dryer, garage door opener, stand alone icemakers, wine coolers, pool, spa, square footage over 5,000 sq ft and so on.
Lastly, many home warranty providers offer “premium upgrades” which typically cost from $35 to $75 and extend the basic terms of your standard warranty to cover more potential repair costs. For example, if the basic coverage did not include faucets and showerheads, then with the premium upgrade, the basic coverage is extended to include faucets and showerheads. It is important to understand what is included in these types of upgrades. Typically, they are a good investment to make for the coverage provided.
In addition, home warranty coverage is limited to items that are in good working condition as of the start of the contract, are located within the foundation of the house and are reported to the provider before the contract expires.
And coverage only applies to repairs caused by normal wear and tear.
What the home warranty typically does not cover
I know what you are thinking—here comes the catch! Well, yes, these providers are selling a $375 product, and, in order to do that economically, they require coverage to be limited in particular ways. In case you are starting to drift off and think about your grocery list or pedicure appointment, this is the important part!
Home warranty coverage is typically limited in the following ways. First, systems must be maintained properly. For example, you’re A/C system—which we use about 340 days per year in the South—needs a once a year maintenance visit. (For some reason, we change our oil every 3,000 miles, but we expect our air conditioner to work for 15 years without touching it…) So, don’t ignore that A/C—keep it well maintained.
Second, coverage does not apply to the brand name, just the ratings, size and efficiency of the system. This means your Trane or Goodman Air Conditioner will be replaced with, or covered up to the cost of, the same size unit but not the same brand, although you can pay the difference if you prefer a more expensive brand. This is also true with kitchen appliances—don’t expect your Sub Zero to get replaced with a Sub Zero! (What did you expect for a $65 option?)
Third, home warranties do not cover secondary or consequential damages. So, if your water heater fails, and sends 50 gallons of water into your living room, the home warranty company would be required to repair the water heater but not the secondary damage to the house.
Fourth, coverage does not apply to systems that are already covered by a manufacturer’s warranty.
Finally, the typical home warranty does not provide coverage for code upgrades, permits, modifications, access/restoration costs and equipment disposal costs, although some of these items may be included in the warranty’s “premium upgrade”. In other words, you should expect to pay a significant amount for non-covered aspects of major home system repairs and replacements. Although some of these extra costs are included in the “premium upgrades” offered, the standard home warranty does not cover the costs to bring your mechanical systems up to code, to dispose of your old equipment, to pay for required permits or to modify the new equipment to work with the existing equipment. In addition, costs for access and restoration are not covered by the standard home warranty policy.
I hope this brief overview has been helpful!
