Home warranty plans have attracted a growing number of home buyers in recent years.
Three-quarters of home buyers rank having the option of a home warranty as one of the most important factors in their decision-making process. But before purchasing a home warranty plan, it’s important to understand what the common terms mean, how the warranty works, and how to use it to save on the costs of home repairs.
By gaining a clear understanding of policy terms and paying close attention to customer service and policy holder reviews, you’ll be able to select the best home warranty policy for your needs. This list of common home warranty terms will help get you up to speed:
- Home Warranty: The terms "home warranty" and "home insurance" are often confused. The home warranty covers issues where loss or damage is caused by any of the reasons cited in the policy. The home insurance, conversely, covers loss or damage due to normal wear and tear. In this way, the two policies are highly complementary.
- Trade Call Fee: A trade call fee can confuse first-time home warranty policy holders who assume the premium covers everything. A trade call fee is a small fee that a policyholder pays to have a contractor or technician make a service visit. Sometimes it’s also referred to in a home warranty contract as a "deductible" or a "service call fee," however, the meaning is typically the same.
- Contract Term: The period of time during which the home warranty contract is in effect. Typically, it’s over a one-year period. Sometimes this is also called the "coverage period."
- Known Condition: Any type of damage, defect, or repairs needed that should’ve been detected during the inspection process. Typically, known conditions are excluded from coverage under a home warranty. If there was no way to detect the condition during inspection, however, it’ll likely be covered.
- Premium: With a home warranty policy, the premium is typically paid in one lump sum annually.
- Optional Coverage: With many home warranties, there’s a basic policy along with the option to purchase add-ons that expand the policies coverage. Optional coverages can vary by insurer but may include pool/jacuzzi equipment, leak repair, or HVAC units.
- Waiting Period: A waiting period, if specified, refers to the exclusion of coverage for certain item(s) until after a minimum time period (often 90 days) has passed.
- Coverage Limit: A coverage limit, if specified, can cap the payout amount for a single appliance or system or total payouts under the policy — or both. Sometimes a total coverage payout limit is called an "aggregate annual claim limit." In most cases, coverage limits reset upon renewal of the policy.
- Claim: A claim is a request you submit for repair or replacement of covered items as specified under your home warranty policy. A claim isn’t the same as a promise of coverage.
- Service Restriction: In most cases, a home warranty insurer reserves the right to select the service provider. For this reason, it’s typically not possible to hire your own independent service professional and still get reimbursement under the policy for services rendered.