What is a home warranty and what does it cover? A one-year service contract that repairs or replaces covered systems and appliances when they fail from normal wear, for an annual premium and a fee per service call.
A home warranty is not insurance. Insurance covers damage from events (fire, wind, a burst pipe's water damage); a warranty covers the mechanical things wearing out: heating and cooling, plumbing, electrical, the water heater, built-in appliances, and with add-ons the pool, spa, septic or second refrigerator. When something fails you call the warranty company, pay a service fee of $75 to $150, and they send a contractor from their network to repair or replace it, up to a cap per item.
The premium runs $500 to $800 a year for a standard plan. The exclusions are where the arguments happen: pre-existing conditions, lack of maintenance, improper installation, code upgrades needed to complete the repair, and anything above the cap, which for an air conditioner is often $1,500 to $3,000 against a replacement cost of $6,000 to $12,000.
Sellers commonly buy the first year for the buyer as a concession at closing, and a free one is worth accepting. Whether to renew is arithmetic: an owner with a repair fund usually comes out ahead self-insuring, and an owner of an older home without one is buying the certainty of a small bill against the chance of a large one.
A worked example
A seller includes a $600 one-year warranty at closing. In March the air conditioner fails; the buyer pays a $100 service fee and the warranty company's contractor replaces the compressor, a $2,400 repair, within the $2,500 cap. Had the whole unit needed replacing at $8,000, the buyer would have received the cap and paid the rest.
Questions people ask
Is a home warranty worth it?
Usually not for an owner with a repair fund, since the premium and fees exceed the average payout. It is reasonable in the first year of an older home with ageing systems, and it is always worth accepting when the seller pays.
Does a home warranty cover the roof?
Not in a standard plan. Some companies sell a roof-leak add-on with a low cap. A roof at the end of its life is a negotiation at inspection, not a warranty matter.