What Does a Home Warranty Cover, and Is It Worth The Money?

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An estimated 95% of homeowners have homeowners insurance, so it’s safe to say that most homeowners want some level of protection for their property. But there are many things that homeowners insurance doesn’t cover such as repairs to your home appliances due to aging or regular use.

Does a home warranty offer additional protection worth having? In addition to money expert Clark Howard’s thoughts on home warranties, in this article I’ll review the following:

What Is a Home Warranty?

A home warranty is a service plan (or contract) for the repair or replacement of appliances and systems in a home. It’s meant to help cover costs if major appliances and/or systems in your home need to be repaired, replaced or serviced.

Unlike homeowners insurance, which protects your property from damages due to unexpected events, home warranties offer protection for the breakdown of covered appliances and systems due to aging and regular use.

But a home warranty doesn’t offer protection for all appliances and systems. Like homeowners insurance, home warranty plans will have items and events that are included and excluded from protection. That list will vary from company to company and by plan, but I cover items that are commonly included and excluded below.

Home warranty plans also have coverage limits and trade call fees. Coverage limits are the most a home warranty company will pay toward fixing an appliance or system annually.

A trade call fee (TCF), or home warranty service call fee, is the out-of-pocket cost you must pay for a trade professional (electrician, plumber, etc.) to provide service. You can think of a TCF as a deductible that you have to pay anytime a system or appliance needs service.

Coverage limits and out-of-pocket expenses are typical for any type of home protection plan, but coverage for items that need repair or replacement because of regular use might sound pretty good. So, what does Clark Howard think about them?

Clark Howard’s Thoughts on Home Warranties

While home warranties might sound like a good idea, Clark says that companies can make it challenging for consumers trying to make use of their contracts.

“It sounds so wonderful. You pay five or six hundred bucks, and supposedly you are buying peace of mind for repairs and replacement of appliances and major mechanical in the house. But when something goes wrong, the warranty company is like, ‘Who are you? You want us to do what?’”

Some of the challenges you might face when dealing with a home warranty company include unclear gaps in coverage (whole appliances aren’t always covered), unexpected fees and slow response times.

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Home warranty companies also might require you to use contractors of their choice when you need support. Clark points out that can present additional challenges like difficulty scheduling services and communicating between the home warranty company and their contractors, a lack of accountability for the quality of services provided and limited options for follow-up services if the job doesn’t get done correctly the first time.

If your air conditioner breaks down, for example, your home warranty company could choose a contractor who may not show up on time — if at all. If a contractor doesn’t repair an appliance sufficiently, home warranty companies sometimes send the same contractors back again. If a contractor causes damage to your property while completing a service request, the home warranty company might not assume liability.

And you’ll have a service fee to pay each time someone comes to your home.

Those are the major reasons why Clark doesn’t think buying a home warranty is a good idea:

“Trust me on this: Don’t waste your money on a home warranty. Instead, save your money for when something does break in your home.”

But Clark says there is one possible exception. He has no problem with you considering buying a home warranty if you’re putting your house on the market.

Home warranties can be purchased by homeowners, renters, homebuyers or sellers. As a seller, having a home warranty can reassure buyers that there’s some level of protection against the unexpected.

“If you are selling a home, you are a merchant trying to give the buyer a sense of confidence about your used home,” Clark says. “So for peace of mind, you spend $400 on a piece of paper that’s not worth anything.”

What Does a Home Warranty Cover?

What’s covered by a home warranty plan will vary depending on the company providing the contract. Household appliances and systems that are generally covered include:

  • Air conditioning system
  • Built-in microwave
  • Dishwasher
  • Doorbell
  • Electrical system
  • Garbage disposal
  • Garage door opener
  • Heating system
  • Oven, cooktop, and/or range
  • Plumbing (interior)
  • Washer and dryer
  • Water heater

Home warranty plans may also have options for additional coverage for items such as your pool equipment or ductwork, and some companies even offer pest control with their plans.

It’s common for home warranty companies to offer three types of plans: systems-only plans, appliance-only plans, or plans that cover both. With a systems-only plan, you can add additional coverage for individual appliances. And with an appliance-only plan, you may select individual systems for additional coverage.

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If you have a home warranty plan or are interested in purchasing one, it’s important to review plan specifics carefully to know what will be covered. Sometimes, certain parts of an appliance or system may be excluded from your coverage. For example, even if a refrigerator is covered, the ice maker could be excluded from the plan’s protection.

Let’s look more closely at what’s typically excluded from coverage in home warranties.

What Does a Home Warranty Not Cover?

Home warranty companies will not provide coverage for appliances or systems that have pre-existing damages or conditions at the time of purchasing a plan. That means any appliances or systems that the warranty company says aren’t in good condition will not be covered.

Assuming that your systems and appliances are all in good condition, there are still some things that are generally excluded from standard home warranty plans, including:

  • Air conditioning window units (and other non-ducted AC units such as wall units)
  • Alarm system wiring
  • Cosmetic damages
  • Countertop microwaves
  • Fireplaces
  • Grain, pellet, wood or portable heating units
  • Ornamental fountain motors
  • Piping for wells (above or underground)
  • Removable accessories from built-in food centers
  • Stand-alone freezers (ex: chest freezers)
  • Structural elements (ex: doors, walls, windows)
  • Wine chillers

You may be able to purchase optional add-ons with a home warranty plan to get protection for systems or appliances (including those listed above) that aren’t covered by a standard plan.

Any damages to your systems or appliances resulting from misuse, improper installation, or improper maintenance will be excluded from coverage, though.

Additionally, home warranties will not cover secondary damages to your home or property t that may have been caused because of damages to a covered appliance or system. For example, a home warranty will not cover the water damage to your kitchen caused by a broken fridge. (If you have homeowners insurance, your policy can likely help with that kind of water damage.)

You can read more here about what else is covered by homeowners insurance here. Home warranties can be thought of as offering complementary coverage to the protections offered by homeowners insurance.

That’s assuming that, during your time of need, your home warranty company delivers on the promises of your contract.

Home Warranty Testimonials

Clark Howard warns that, “If something goes wrong in your home, the warranty companies are brutally difficult to deal with.”

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If Clark’s caution isn’t enough, consider this: American Home Shield (AHS) is the country’s largest home warranty company. According to the Better Business Bureau (BBB), more than 27,300 complaints have been made against AHS over the last three years.

Team Clark and our Consumer Action Center hear from people all the time who feel like they’ve been taken for a ride by their home warranty companies.

Consider some of the comments we’ve received on our Facebook page below:

Bill C.B. wrote:

“My toilet has a leak at the base of toilet (I think the wax ring needs to be replaced). And it rocks back and forth when sitting on it. Called for service, a technician came out and [they] denied the repair because you cannot see the leak on top of the vinyl floor (it is slowly seeping in between the concrete slab and the vinyl flooring). But [they] took my $100 fee.”

And Deborah F.H. said:

“I got one of these with the purchase of a new condo. The bathroom faucet that started leaking 30 days after we moved in? Not covered. The hot water heater that failed? Replaced with a far inferior one! And still cost $600 for ‘whatnots.’ [The company] called me about renewing & I just started laughing.”

Check out even more testimonials on home warranties here.

Final Thoughts

On paper, a home warranty promises to complement homeowners insurance policies by providing protection for your home’s systems and appliances. But when it comes to customer satisfaction, many of the large home warranty companies I researched have low customer ratings due to the challenges that consumers face when trying to make claims.

If you want protection for your appliances and home’s systems but don’t want to risk dealing with home warranty companies and contractors, one option is to start your own fund for unexpected home expenses.

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If you can save $50 a month, you’ll have $600 at the end of a year. This is about the same amount you can expect to pay annually for a home warranty. By starting your own savings for this, when you do need to use your money, you’ll get to choose who and how you want to repair or replace your property.

If you feel that a home warranty is right for your needs though, it’s worth reading company-specific reviews on sites such as Trustpilot or the BBB for any company that you’re considering. Look out for how many complaints a company has, the types of complaints being made and whether complaints get resolved.

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