HOW MUCH DOES A HOME WARRANTY COST?

Home warranties are service agreements for repairs and replacements of home systems and appliances that, on average, cost around $25-$80 per month. There are a few additional charges in the form of optional add-ons, deductibles, coverage, and other factors.

Home warranty policies have various aspects to them that affect the prices of the plans. We have prepared a detailed breakdown of the expenses incurred while purchasing a home warranty. Keep reading to learn how to buy the most cost-effective home warranty plan for your home.

WHAT ARE THE COSTS INVOLVED WITH PURCHASING A HOME WARRANTY?

There are a few terms you should understand regarding the home warranty cost breakdown that would be mentioned in your service contract.

You pay a monthly or annual amount called a premium that transfers the risk of facing unexpected home systems or appliance breakdowns to the company. The second component of the home warranty cost is the deductible, a small part of the claim that you as the claimant agree to pay. The cost of optional add-ons is a part of the premium payment.

Service fee and trade call fee are terms used interchangeably with deductible. Usually, you would pay the service fee to the service contractor directly. The trade call fee is a token amount that you pay in exchange for the diagnosis and repair services that a service technician offers. Since the technicians are independent contractors, the policy ensures to cover their labor costs.

When the service provider approves a repair or replacement, they may offer a cash payout if they can’t facilitate the actual service. This amount is subject to the terms and conditions of coverage caps in the service agreement. Home warranty companies that allow choice of contractor can also offer a cash payout to the customer instead of paying the technician.

Premium:

Most companies offer two or three plans ranging from basic warranty coverage to comprehensive or advanced coverage.

A basic plan usually starts at $28 per month or $300 annually

A comprehensive plan starts at $50 per month or $450 annually

An advanced comprehensive plan may go upto $800 or more annually

Deductible:

Some companies have a standard deductible, while others allow choice of deductible. The premiums are lower if you opt for a higher deductible.

The average standard deductible that you pay per claim is $80

If there is a range of deductible prices to choose from, it may be $65-$125

Optional Add-Ons:

Home warranty companies don’t deem items like pool pumps, wine coolers etc. to be risky enough to include in the main plans, but do offer coverage upon adding to the plan. Some common optional add-ons and average annual coverage costs are as follows:

Sewage Ejector Pump- $35

Inground Pool/Spa- $150

Water Softener & R/O Water Filtration System- $60

Salt Water Pool- $400

Cash Payout:

The extent of repairs or pro-rated cost of replacement determine the amount of the cash payout. It can vary from $80 to $3000. The maximum possible payout is subject to the coverage cap for the system or appliance.

Home warranty companies conduct extensive research before determining plan offerings and service provisions. We have simplified the methodology used by the home warranty industry for your convenience.

RISK POOLING

A home warranty plan is based on the same concept as insurance, though legally, it is quite different. Insurance and extended warranties operate according to the concept of risk pooling. In risk pooling, a group of people transfer certain agreed-upon risks to an entity, who takes on the liability of losses arising from those risks.

In the case of home warranty, the risk is facing unexpected home systems and appliances breakdowns as they wear out over time. External warranties are based on external risk pooling because the companies that accept the liability are third parties, the first two parties being the consumer and the manufacturer.

WHY WOULD A THIRD PARTY WANT TO TAKE ON THE RISK? WHAT’S IN IT FOR THEM?

There is always a chance there will be an unexpected home appliance breakdown and repairs will be expensive. However, some homeowners are at lower risk than others. The home warranty company can offset the costly liabilities with the premium payments from the low risk clients.

When home warranty providers price their plans, they rely on various finance professionals and statisticians to calculate the potential liability, risk probability, etc. for each possible scenario and breakdown cause. The optional item premiums and coverage caps are set accordingly.

ADDITIONAL SERVICES AND NUANCES OF COVERAGE

Some companies charge high premiums by offering a variety of adjunct services including special home appliance purchase discounts, higher coverage cap, workmanship guarantee, etc.

Most home warranty companies have a range of plans according to property size. Usually, people buy plans for homes that are 5000 sq.ft. or smaller. Larger homes and multiple units require an additional fee.

Typically home warranties cover home systems and appliances of any age. However, the cash payout decreases when replacing older appliances since the company provides a pro-rated amount. The payout is also subject to coverage caps. If you have a broken refrigerator that costs $2000 to replace and the coverage cap is $1500 for the appliance, you would have to pay the remaining amount out of pocket.