Home Warranty Deductible: What to Know Before You Buy Your Home Warranty

A home warranty has the potential for significant savings on appliance repair and maintenance costs, but homeowners must account for the cost of the warranty itself. A policy is only worth the expense if the total costs are less than what a homeowner would have otherwise paid to fix or replace faulty equipment.

This article will review deductibles and other expenses commonly associated with home warranty plans so you can more easily determine what kind of home warranty coverage is right for you.

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What Is a Deductible?

A deductible is a common feature of any kind of insurance plan. In simple terms, a deductible is the amount the policy holder must pay before the policy provider begins to take on costs. An auto insurance plan, for example, might have a deductible of $1,000. In the event of an expensive accident, the policy holder must pay $1,000 out of pocket when filing a claim. The insurance company will pay for additional costs to repair or replace the car (barring any coverage limits, which we will describe later).

Health insurance and homeowner’s insurance have deductibles as well. These costs offset an insurance provider’s expenses and function to prevent fraudulent or frivolous claims.

Do Home Warranties Have Deductibles?

A home warranty is not the same as homeowner’s insurance, but it does follow a similar financial model. As such, a warranty plan will usually include a deductible. Providers often refer to this deductible as a home warranty service call fee.

A home warranty’s deductible, or service fee, is a fixed expense that the policy holder pays only when submitting a claim to repair, service, or replace an appliance or home system. In this way, you can also think of it as similar to a health insurance policy’s copay.

How Much Is a Warranty Deductible?

Deductible costs vary from plan to plan, just as they do in the insurance world. Some home warranty companies may offer a plan with a low monthly premium but high service fee. Another company may keep its home warranty service fee low but demand a higher month-to-month premium.

Reputable home warranty providers will be upfront about their service fee costs. Most companies have service fees that cost between $75 and $125.

If you are looking into buying a home warranty, ensure that the deductible cost is stated clearly in the contract before you agree to a plan.

What Is the Purpose of a Warranty Deductible?

While some people might balk at the idea of an added fee, home warranty plan deductibles actually serve to keep overall plan costs down.

Many companies use the service fee to support the technicians and other tradespeople who service faulty home appliances and systems. Good warranty providers maintain networks of home professionals who are local to their customers’ homes. This ensures that there is a licensed professional nearby whenever a homeowner files a claim. These technicians are reimbursed through the warranty company rather than the homeowner, hence the need for a nominal fee.

Also, like insurance plan deductibles, home warranty service fees discourage frivolous claims. If customers must pay even a modest fee, they are less inclined to request service for some minor or inconsequential problem that a warranty may not even cover anyway. This means customers file claims only when necessary, which brings down overall business costs for warranty providers, and this in turn leads to lower premiums for policy holders.

What Other Costs Are Associated With a Home Warranty?

The primary home warranty expenses are the monthly or yearly premium and the deductible, or service fee. There may be a small fee associated with canceling a plan, but reputable home warranty providers will not surprise their customers with hidden fees. The specifics of your coverage, however, could lead to you paying for additional repair services out of pocket.

It is not uncommon for a home warranty plan to have a coverage limit. This is a cap on the amount the provider will spend on appliance repair and replacement costs within a given timeframe. Imagine, for example, that your refrigerator breaks down. It cannot be fixed, and you need to replace your appliance with a new unit that costs $2,000. If your warranty plan has a coverage limit of $1,500, then you are responsible for the $500 difference.

Also consider that some companies limit the number of claims a customer can make in a year. If you hit your claim limit but encounter another appliance breakdown, you will have to personally schedule and pay for service.

Are Home Warranty Costs Tax-Deductible?

Now we have a handle on all the costs that go into a home warranty, from the premium to the home warranty deductible. Taxes, unfortunately, do not usually allow for you to deduct these expenses. Home insurance expenses are not tax-deductible, and neither are home warranty expenses. There are two potential exceptions.

If you use part of your home as a home office, you may be able to argue that your warranty costs are a business expense. You can compare the square footage of your office space to that of your entire home and deduct this same percentage of your warranty and insurance expenses.

Also, if you rent out a property that you do not reside in, you may be able to write off the warranty and insurance costs associated with that

Final Recommendations

While many home warranty plans follow a similar model, there can be significant variation in coverage and costs across companies and plans. Details also vary from state to state. If you are shopping for a warranty, research several providers to compare costs and services. Review sample contracts and request that offers or guarantees be provided in writing. For more information on the specifics of Liberty Home Guard’s plans, call (866)-450-0543.