A Home Warranty Is Different From Homeowners Insurance—Here's What It Covers

What exactly is a home warranty? It protects your home from everyday wear and tear, not just disasters. Here’s everything to know.

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Buying a home is a big deal. That's why you should do everything in your power to protect it against both potential accidents (thanks, homeowners insurance!) and inevitable wear and tear, like a malfunctioning washer/dryer or broken kitchen appliances. That's where a home warranty comes into play—especially for first-time homeowners. Time to break down the what, when, why, and how much of this particular protection plan.

How a Home Warranty Works

A home warranty, or home protection plan, is different from homeowners insurance (which will essentially reimburse you for accidentally damaged property covered in your insurance policy). Home insurance is often required to obtain a mortgage, while a home warranty is usually a voluntary purchase.

"Home protection plans can be considered a type of 'extended warranty' that covers the repair and/or replacement of specific appliances and systems within your home," says Jen Horner, a Realtor with RE/MAX Masters. "It can provide cost savings if a covered appliance or system fails." Depending on your policy plan, it could cover plumbing, HVAC, expensive kitchen appliances (think: stove, oven, fridge), pools, and electrical systems—to name a few.

If you've purchased a home protection plan, all you have to do is file a claim with your warranty company when something needs fixing or replacing (for example, if your fridge stops working). From there, the warranty company takes care of contacting a service person from a vetted network of contracted pros. If the problem, like a busted fridge, is covered by your policy, the contractor will schedule an appointment to come and repair it. You pay for the cost of the service call (typically around $75), while the warranty company picks up the rest of the tab. What happens if your fridge needs more than a tune-up? "The company will pay to replace it—[as long as] it wasn't noted as defective to begin with in the buyer's home inspection report," Horner says.

How and When to Purchase Home Warranty

The terms of an initial home warranty policy typically run on a 12-month basis, for your first year in your new home. "A request for the protection plan can be made during the real estate purchase contract negotiation," Horner says. "It's not out of the ordinary for a home buyer to request that the seller include a one-year, seller-paid home warranty or protection plan as part of their offer."

Home Warranty Cost and Coverage

As with insurance, protection plan policies vary. Make sure you know exactly what's covered before making anything official. Let's say you have a hot tub—the warranty policy might only cover basic systems and appliances, while that hot tub would be considered an extra you'd need to purchase as an add-on. Premiums vary by company and coverage level too. Are you buying a house or condo? How many square feet—or specific items—need coverage? "Basic plans can be as low as $350 per policy while more expensive, comprehensive plans for larger homes can be up to $1,000 for an annual plan," Horner says.

A Few Home Warranty Caveats

Whether or not certain home protections plans are worth getting depends on the terms. It provides peace of mind not having to worry about random, pricey repairs or replacements, but there are some potential drawbacks to consider. Since you're dependent on the warranty company, you don't get a say in the service person, schedule, or whether or not you get a replacement in the first place. It's possible the warranty company would just provide a quick fix that only lasts the life of the warranty. To give yourself a say, request to see a list of service workers, estimated service fees, and their typical turnaround times before agreeing to a home warranty plan.

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