Home Warranties

Traditionally, home warranties have protected homeowners from repair costs that aren't covered by home insurance, especially the inner workings of a home--plumbing, heating, air conditioning, and major appliances. Home warranties are often crucial in real estate transactions because they help home buyers as well as sellers rest more easily, safe in the knowledge that an unforeseen problem with a furnace won't spark a financial conflict, postpone a real estate closing, or blow a deal altogether.

While home warranties aren't necessary for every current homeowner, those who benefit most are those trying to buy or sell homes.

When you buy a home, you assume the burden of maintaining a variety of systems and appliances. Sellers are required to disclose known problems, but can't be blamed for passing along a washing machine or an oven that fails six months after the sale. That's when a home warranty goes to work.

The National Board of Realtors describes home warranties as service contracts, typically lasting one year, that cover the repair or replacement of major home systems and appliances that break down due to normal wear and tear. Home warranties don't overlap or replace the homeowner's insurance policy, says Alan Pyles, president of HMS Home Warranty. "They work hand-in-glove," he explains. "The warranty covers mechanical breakdowns, while insurance typically repairs the related damage. Think of it as a cause/effect relationship: If a pipe burst and destroyed a wall in your home, we'd repair the pipe that burst; your insurance would fix the wall."

Similarly, if your refrigerator were to stop working while you were on vacation, there could be spoilage, leakage, or floor damage. Your homeowners insurance might pay for the damage to the linoleum, while the home warranty would cover the mechanical breakdown of the refregerator.

Generally, home warranties cover malfunctions of major appliances such as washers, dryers, ovens, refrigerators, as well as ductwork, plumbing, electrical, heating, and air-conditioning systems. In some cases, or for additional fees, the warranty might extend to garbage disposals, doorbells, paddle fans, garage-door openers, water softeners, trash-compactors, and built-in microwaves.

The age of the home doesn't matter as far as coverage is concerned, as long the covered items are in good working order at the start of the contract, explains John Yacono, vice president of national accounts for American Home Shield, the nation's oldest and largest provider of home warranty contracts.