What is a Home Warranty?

What is a Home Warranty?

home warrantyWhile Home Warranties are available in both the US and the UK, what the product actually offers vastly differs in both countries.

The US

In the US, a home warranty is a one-year contract that covers the cost of repairing or replacing certain mechanical systems and appliances in your home.  Most home warranties cover items such as hot water systems, plumbing systems, electrical systems, washing machines, dryers, and kitchen appliances.

Most of the items that you purchase come with some kind of warranty.  Your personal computer, mobile phone, and vacuum cleaner can all be returned to the store if they break down during the warranty period.  But did you know you can also obtain a warranty for the expensive mechanical systems and appliances inside your home?  This type of coverage is called a home warranty.

By taking out a home warranty will protect you against any sudden financial shocks caused by unexpected home repairs.  It also ensures that any repairs around your home are carried out quickly and efficiently.

 

The UK

By contrast, home warranty in the UK is a more construction related type of insurance.

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More often known as structural Defects Insurance in the UK, it is designed to provide a buyer peace of mind when they purchase a new home. It is a policy that essentially allows property owners to reduce the risk of exposure to defects in the building such as defects in the design or workmanship or the materials used on the building.

It also usually provides up to 10 years coverage against poor workmanship and structural defects that may occur.

 


How does a home warranty work?

The US

In America, a home warranty is a one year, renewable contract that covers the cost of repairing or replacing certain mechanical systems and appliances in your home. At the very least, a home warranty will cover the following items:

  • Kitchen appliances
  • Water heaters and furnaces
  • Plumbing systems
  • Electrical systems

Many home warranty providers have optional coverage for pool and spa equipment, air conditioning systems, washer/dryers, well pumps and other appliances.  The types of items covered will vary depending on the policy that you choose.  You may find that you require additional coverage if your home has multiple appliances (for example, many refrigerators or stoves).

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Most home warranties can be purchased for a premium of between $250 to $600 annually.  The cost will vary based on the level of coverage received and the type of home you own.

In addition to this annual premium, the homeowner will have to pay a service call fee every time they ask the service provider to send someone to look at a problem.  This fee is usually between £40 ($50) to £100 ($125) for each visit.

Home warranties will also have annual caps on the total amount they will pay for repairs and appliance replacements at your home each year.

Most policies will also have caps on the amount they will pay on specific types of repairs or replacements.  For example, it is common for home warranties to have a limit of £400 ($500) on the repair or replacement of dishwashers each year.

It is important to understand that home warranties only cover certain mechanical systems and appliances for failure caused by normal daily use.  You will not be covered if you failed to properly maintain an appliance, installed it incorrectly, or used it incorrectly.

Making a claim on a home warranty is simple.

  • If you discover that a home system or appliance is not working correctly, you contact your home warranty provider.
  • The home warranty company calls one of their service providers. They will have agreements with many service providers.
  • The service provider contacts you and arranges a suitable time to visit your home.
  • The service provider will diagnose the cause of the fault. If the problem is covered by your home warranty, they will immediately attempt to repair it.  If the issue cannot be repaired, they will arrange a replacement.
  • The homeowner pays the service fee for the visit.

The UK

Otherwise known as structural defects insurance in the UK, a home warranty is usually purchased by a builder or property developer who is overseeing the property being built.

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As we mention in part one of this series, most home warranties provide the following types of coverage:

  • Home deposit insuranceA builder or property developer may become insolvent before they complete the construction of your home. Home deposit insurance helps you recover any building deposit that you may have paid the company before they completed the project.
  • Builder warranty resolutionAll builders in the UK must provide a two-year warranty on any new home they build. This is called the defects insurance period.If you notice a problem with your home within the first couple of years, you should approach the builder directly.  However, if they refuse to resolve the issue, you can turn to the home warranty coverage provider.They will determine if the issue with the building is a breach of their technical building requirements and deal with the builder on your behalf.
  • Damage to your home caused by defects

    After the initial two builder warranty period has concluded, your home warranty will provide another 8 to 10 years of cover for structural problems with your home. This is called the structural insurance period.If a defect in the construction of your home causes damage to another part of your home, you will be reimbursed by your home warranty cover.  Most policies cover you against damage caused by defective glazing, foundations, ceilings, walls, roofs, pipework, roofs, chimneys, and stairs.
  • Contaminated land coverIf you discover that your land is contaminated, you may be reimbursed for the cost of treating or removing it. This is an optional form of coverage on some home warranty policies.
  • Building regulations cover

    Home warranties will usually cover for buyers who later discover their property does not comply with building regulations.

 


 

Home warranty vs home insurance

In the US, a common question asked is what the main difference between home warranties and home insurance, what they relate to and what they cover.  A home insurance policy will cover the cost of repairing or rebuilding your home if certain types of events damage it : Those events usually include fire, hail, property crime, certain types of water damage and other natural disasters.

A home warranty covers costs associated with repairing or replacing mechanical systems and appliances inside of your home after they become broken during daily use.

If a drain, light switch, or garbage disposal suddenly breaks, your home warranty will help you pay for the cost of repairing it — a home insurance policy will not.

 


 

When is home owners warranty insurance required?

While in America there is no legal requirement to have a home warranty, if you are selling your home, it is often a good idea to purchase one.  It can be transferred to the buyer of the property, protecting you against any post-sale conflicts that may occur if something breaks just after the sale.

In the UK, home warranty insurance is a mandatory requirement from mortgage lenders before they release funds for a property purchase if the house is new or under 10 years old.

 


 

What Is the Best Home Warranty?

There are many excellent home warranty providers in both the US and the UK. In America, the best home warranty can however vary depending on the specific requirements of each home owner.

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We have listed a few well known providers.

The US

The following three providers offer exceptional value-for-money and feature packed policies.

  • American Home Shield
    American Home Shield is the leading provider of home warranties in the United States. They offer flexible coverage, coverage for 10 appliances, and up to $3,000 for most repairs and replacements.
  • Sears
    The Sears home warranty plan has some excellent features, including coverage for up to 20 appliances, 24/7 phone support, unlimited service requests, and low service fees.
  • First American
    First American is one of the most affordable home warranty providers. Despite their service fees and premiums being low, they offer excellent customer service and feature-rich policies.

The UK

The following three providers offer exceptional value-for-money and feature packed policies.

  • CRL Management 
    One of the most respected and competitively priced structural defects insurers in the UK, it is well worth paying a visit.
  • LABC
    LABC provide a wide range of structural warranties for developers and contractors.