Home Repair Insurance: How Does It Work, And Is It Necessary?

Homeowners insurance covers major perils like fire and hail but excludes damage from everyday use. Home repair insurance is a stand-alone policy that can bridge some of the gaps of a standard homeowners insurance policy. However, not every homeowner would benefit from home repair insurance, and some may already have coverage without realizing it.

What is home repair insurance?

Home repair insurance, commonly called a home warranty or home maintenance insurance, is an optional policy that protects homeowners against wear and tear to major home systems and appliances. Generally, the coverage included in home maintenance insurance is excluded in a standard homeowners insurance policy. For instance, if your air conditioner stops working due to a mechanical failure, home repair insurance would cover the cost, but homeowners insurance wouldn't.

The companies that offer home warranties are often small, not well-known national companies like State Farm or Farmers. Coverage varies widely, depending on the company. Below are some of the most commonly covered items:

Home repair policies set dollar limits for specific items. For instance, a company may place a $1,500 limit on washing machines. As a result, your washing machine repair or replacement cost can't exceed $1,500, even if your machine is worth more. You'd have to pay the difference between what's covered and the repair or replacement cost. Most companies have different policy limits for different items, so read the fine print before buying a policy.

How to file a claim

If something covered under your home repair insurance policy breaks, first call the company that issued the policy. Most companies will connect you with a prescreened contractor in your area. The contractor will then come to your home and assess the damage. If the item qualifies for coverage, you can expect it to be repaired or replaced to the limit on your policy.

Do I need home repair insurance?

To decide whether you need home maintenance insurance, take inventory, including ages, of all your major appliances and systems. Then, compare the ages of the most costly items and systems in your home to their average life expectancies on the International Association of Certified Home Inspectors chart.

Sign up for home repair insurance if many of your most expensive appliances and systems are near the end of their life expectancy, assuming you've kept good records.

Some of the most common appliances and systems are listed below, along with their life expectancies:

If your home appliances and systems are fairly new, you probably don't need coverage.

It's common for new homes to come with a one-year warranty that typically excludes coverage for household appliances. So, it would cover systems like heating, air-conditioning and electrical, but not appliances like a dryer, microwave or oven. New homeowners should evaluate whether the repair or replacement cost of appliances alone justifies the cost of home repair insurance.

How much does home repair insurance cost?

As with homeowners insurance, the cost of home repair insurance depends on the level of coverage. You can expect to pay around $300 per year for basic coverage, which typically only provides repairs and replacements for appliances.

Higher-priced policies can cost as much as $600 per year but cover more, such as swimming pools and hot tubs. Many companies offer a custom policy, which means you can select which items you want covered and exclude items to save money.

Most home warranties last 12 months and can be renewed. You'll likely pay for coverage all at once or in monthly installments. In addition to the annual cost, you'll have to pay a service fee when you request a repair or replacement. The fee can range from $50 to $125. A higher service charge results in a lower annual cost, and vice versa. It's similar to the relationship between deductibles and premiums for homeowners insurance.

Home repair insurance for an old home

The main drawback to home repair insurance is that most companies require customers to perform routine maintenance to keep units eligible for repairs and replacement. For instance, if your washing machine manufacturer recommends replacing water hoses every six months, your coverage would be void if you failed to do so.

This might not be an issue for new homeowners, but it may cause problems for anyone buying an older home. Most sellers won't be able to provide complete records or proof of routine maintenance on the home's appliances or systems.

New homebuyers should ask the sellers to provide a record of maintenance and home improvements plus manuals for major appliances. If the previous homeowners can't provide records for a home's systems and major appliances, then avoid home repair insurance. You could end up paying for coverage but not qualifying for repairs or replacements. If the previous homeowners can provide detailed records, ensure routine maintenance was performed on the home's most expensive appliances and systems.

Regardless, moving forward, you should keep a home maintenance log with all of these records. This will help you get home repair insurance in the future and ensure you can use it. As a side benefit, keeping a detailed inventory of your home's contents could prove useful if you ever need to file a homeowners insurance claim.