Home warranty basics: Defining them and why you need one

If there’s one thing you can count on when living in a home with your entire family, it’s this: sooner or later, one or more of your appliances and systems is going to break down.

What’s more, they will break down when you seemingly need them the most. Imagine, for instance, a cold winter’s morning. You get out of bed and turn on a hot shower. Only, when you go to get in the shower, the water is colder than the icicles hanging from your roof eaves. Obviously, your water heater is broken. 

Enter the home warranty. While you might be under the impression your home insurance policy will cover the damage of a water heater that’s failed due to everyday wear and tear, you will be sadly mistaken. 

Says Cinch Home Services, one of the best home warranty companies in Pennsylvania, many homeowners overlook the easiest and most effective way to control the costs of taking care of your home: the home warranty. It’s one of the best ways not only to cover the costs of repair and replacement of broken appliances and systems, but they assist you with finding the right service technician for the job. 

But then, what exactly is a home warranty, and why should you invest in one? According to a recent report by Financial Samurai, one of the best assets for building wealth is real estate. It can generate rent, and generally speaking, it appreciates faster than inflation. On a basic level, it puts a roof over your head. 

However, purchasing a home can be an expensive endeavor. If you do buy one, you will likely make the decision to purchase a home warranty and for good reason. Here’s why. 

Defining a home warranty

The typical home warranty is a contract that covers the repairs and replacement of your home’s aging appliances and systems. In many cases, the home warranty is meant to provide service to failing items, not replace them. 

However, in the long run, a failing washing machine or refrigerator might be too expensive to repair. In that case, your contract will cover its replacement. 

Home warranty premiums of about $30 per month, depending on your agreement, can be paid in full or in monthly installments. You can go with a premium plan that covers service calls, or a lesser plan where you pay out-of-pocket for the technician to come to your home and assess the breakdown.  

Keep in mind, home warranties are optional, and unlike homeowners insurance, mortgage lenders don’t require it. But you should get one anyway if you enjoy saving money. 

What a home warranty covers

When you find out the scope of what a home warranty will cover, you will clearly see why it’s a no brainer to invest in one. It covers, but is not limited to the following items: 

  • Plumbing systems
  • HVAC systems (but not mobile AC window units)
  • Electrical systems
  • Laundry room washers and dryers
  • Kitchen appliances from refrigerators to built-in microwaves (but not stand-alone countertop microwaves)

Home warranties are not homeowners insurance and you should not confuse the two. Your home insurance will cover events like fire, flood, theft of your personal belongings, and other disasters both natural and man-made. It will also cover liability if someone falls and breaks an arm on your property.  

A home warranty on the other hand will cover appliances and systems that break down from normal wear and tear. It also doesn’t cover just basic items. You can pay an additional cost for a home warranty if you’d to cover these specialty items and their components: 

  • Septic systems
  • Water softeners
  • Hot tub and inground/above ground pool
  • Sprinkler systems
  • Well pumps and more

Make certain you go over the details of your home warranty contract prior to signing. You don’t want to sign and assume something is covered when it isn’t. 

The cost of a home warranty 

Says Consumer Affairs, typical home warranty plans can range anywhere from $300 per year to $600 per year. Even if you purchase an older home and renovate it while installing new appliances and systems, it pays to get a home warranty just in case an appliance failure occurs and the manufacturer’s warranty doesn’t cover it. 

It’s best to simply pay for the warranty upfront. On occasion, a seller or their realtor will toss in a home warranty to sweeten your purchasing agreement. In any case, it doesn’t hurt to ask for one. 

You can be as specific as you like when it comes to creating a home warranty that covers your appliances and systems. It all depends on how much you are willing to spend and how well you like to sleep at night.