Home Warranties vs. Home Service Contracts – What’s the Difference?

Erin Easley

Written By Erin Easley

Published 03/11/20
Home Warranties vs. Home Service Contracts

Purchasing a new home is one of the most significant life decisions a person can make. To protect this substantial financial and personal investment, new homeowners should be ready for the possibility of needing to repair expensive home appliances, systems, and structures. Most homeowners can protect their home—and their wallet—with a home warranty agreement or a home service agreement, but understanding the difference between the two can be a challenge.

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Home Warranty vs. Service Agreements

A home warranty agreement, or contract, and a home service contract are similar in principle. They both protect homeowners from paying out-of-pocket should something expensive in the home fail. But there are crucial differences for homeowners to be mindful of.

Home Warranties

Let’s first take a look at home warranties. A warranty on a home is much like the warranty consumers may have on their car or computer. It’s a guarantee on behalf of the manufacturer to ensure the quality and functionality of their product within a set amount of time. Home warranty coverage typically includes:

Individual home warranty plans may cover various appliances, such as dishwashers and ovens, but this is less common.

Important to note is that the homeowner does not usually need to worry about the home warranty cost. A warranty is backed by the home builder or a third party and is granted to the buyer of the home free of charge. If the homeowner sells their house, the warranty is transferred from the seller to the new owner.

A home warranty protects homeowners from financial setback if a structural or integral component of the home needs to be repaired or replaced. But there are drawbacks to the average home warranty:

  • Limited coverage. Many common expensive appliances may not be covered by the home warranty.
  • A home warranty, like an insurance policy, requires a financial backer. If the backer of the warranty goes out of business, the homeowner may be forced to front the cost of repairs.
  • Warranties are typically valid for a set amount of time—even as few as one or two years. Homeowners need coverage that extends further into the future.

Because of these drawbacks, many homeowners supplement their coverage with a service contract, or “extended home warranty.”

Home Service Contracts

A service agreement, or contract, is sometimes referred to as a home warranty, but there are important differences as compared to a true home warranty described above. A service contract can cover the same systems covered by a home warranty, but here are a few other possible items a home service contract covers:

  • Refrigerators
  • Dishwashers
  • Washing machines and dryers
  • Ovens and stoves
  • Humidifiers and dehumidifiers
  • Heating and cooling appliances
  • Garbage disposals

Coverage varies from plan to plan. A service contract may be comprehensive or cover one specific appliance or system. It might even cover only a specific part of a single appliance. The cost of a service contract varies depending on the level of coverage, but consumers can find plans for as little as $300 per year.

Service agreements pose an additional cost to homeowners, but ultimately save money in the long run when homeowners are spared the high expense of repairing or replacing a major home appliance, structure, or system.

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