What is a home warranty & what does it do?

Sometimes I mention "home warranty" and people start nodding their heads and they say something like, "oh yes, insurance on my house."  Well, no. It's not a homeowner's insurance policy.  Homeowner's insurance is the big one; covers fire, trees crashing through your roof, someone getting injured on your property, your belongings, etc.  A home warranty is something quite different.

The home warranty is a one year policy that covers the working parts of a house.  Working parts are things like the heating & air system, water heater, dishwasher, swimming pool, electrical system, etc.  They were originally created to give homeowners some coverage for the big ticket items like heating & air but have evolved to cover much more.  Typically, the process goes like this:

• Your water heater malfunctions or quits working.
• You call the warranty company's toll-free number FIRST. Do not call a plumber, or any type of contractor without calling this number first.  You will void the warranty.
• The warranty company authorizes the proper contractor to come to your home.
• You pay that person a deductible, which can be anywhere from $50 to $100, depending on your plan.
• The contractor evaluates the problem and determines if it can be repaired or if it requires replacement.  They report this back to the warranty company who then approves the repair/replacement.

So, as you can see, this type of coverage can be quite valuable to a homeowner, especially someone who has not owned a home before.  As the end of that first year approaches, the warranty company will offer to extend the warranty for you.  You just pay the annual premium and you're all set.  Usually this is no more than $500, depending on the size and age of the house.  I can tell you from experience, if your heating & air dies on July 3rd in South Carolina, you'd much rather write a check for $500 than $2500!  Because when it's 100 degrees and 105% humidity, you're writing a check!