What Does a Home Warranty Cover?

Editor's Note: This story originally appeared on Point2.

A home warranty is a type of contractual agreement that covers the cost of repairing or replacing home systems and appliances.

It is optional home coverage, yet it can spare you a lot of headaches, especially if you have older appliances and home systems that would cost a lot to fix.

In this guide, we’ll look at what is typically included in a home warranty and explain how it differs from a manufacturer’s warranty and homeowners insurance.

What Is Covered by a Home Warranty?

Let’s start by listing what is typically included in a home warranty coverage:

Home systems:

• Internal plumbing
• Internal electrical systems
• Heating and cooling systems (including ductwork)
• Smoke detectors and fire or burglar alarms
• Central vacuum cleaners
• Ceiling and attic fans

Appliances:

• Refrigerators and ice makers
• Built-in ovens and microwave ovens, ranges, cooktops
• Clothes washers and dryers
• Dishwashers
• Exhaust fans and hoods (including kitchen fans and attic fans)
• Garbage disposals

Apart from appliances and major home systems, home warranty companies also provide a list of add-ons, which can extend your coverage to include items and amenities such as:

• Electronics (laptop, TV, computer, etc.)
• External plumbing (including septic systems, sump pumps, well pumps and sewer lines)
• Spas and pools
• Rentals and guesthouses located on the property premise

The home warranty coverage is usually capped at a certain amount per appliance or system. If the cost of repairing it exceeds that amount, you can choose between having it replaced or paying the difference needed to fix it.

What Isn’t Covered by a Home Warranty?

Here are the main items left out of the home warranty coverage:

• Any issues previously discovered by a home inspector
• Problems that result from neglect or poor maintenance
• Systems and appliances damaged as a result of incorrect use, incorrect installation or manufacturing flaws
• Damage caused by pests such as termites and rats, or mold
• Identifying and removing hazardous substances such as lead and asbestos
• Solar panels
• Fireplaces
• Commercial appliances
• Cosmetic damage

It’s worth pointing out that just because something seems like it would be covered by the home warranty doesn’t mean it will.

For example, some providers may offer coverage for refrigerators but not for free-standing freezers. Or they may provide coverage for doorbells, but not if they’re part of an intercom system. So always read the small print carefully to ensure that the coverage fits your needs.

Despite the name, a home warranty will not include the structure of your dwelling. This means it will also exclude coverage for structural problems, windows, foundations, flooring, walls and roof. There is, however, an exception to this rule:

Home Warranties for New Constructions

In both the U.S. and Canada, builders can provide a home warranty covering new constructions for up to 10 years.

The coverage is typically included in the home price, guarantees the quality of labor and materials used in the new building, and will cover potential problems with the roof, exterior walls, foundation and frames.

Depending on the company, a home warranty for new buildings can also include coverage for appliances and home systems such as plumbing, electrical and heating.

Home Warranty Versus Manufacturer’s Warranty

Both home appliances and systems come with a standard manufacturer’s warranty by default. Yet this type of coverage is drastically different from the one provided by a home warranty.

The main difference is that a manufacturer’s warranty will cover the cost of parts and labor needed to repair an appliance, but only as long as the damage is caused by a manufacturing fault. On the other hand, a home warranty will cover the cost of repairing damage that results from regular wear and tear.

Also, a manufacturer’s warranty is limited to new systems and appliances. Meanwhile, a home warranty will provide coverage for older items as well, even if they are outside the manufacturer’s warranty by several years.

Home Warranty Versus Homeowners Insurance

As a homeowner, you’re most likely wondering which is worth buying: a home warranty or home insurance? To better understand which one you’ll need, keep in mind that a home warranty protects your home systems and appliances and covers the cost of repairing or replacing them.

Homeowners insurance is more comprehensive in terms of coverage and will include not just your dwelling but also personal belongings such as furniture, living expenses in case the damage to your home makes it temporarily unlivable, and even liability protection.

Of course, nothing prevents you from getting both a home warranty and homeowners insurance. But if you’re still wavering between the two, it’s best to discuss this with a professional and find out which policy suits you best.