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Home warranty companies charge a monthly or annual premium in exchange for offering repair and replacement services for your home’s appliances and systems. But what is a home warranty deductible? How much is it? And most importantly, why do you need to pay it? Let us break it down for you.
A home warranty deductible, also called TSF (trade service fees), trade call fee, or service fee, is paid when you make a claim for a covered item malfunctioning. It may cost between $50 and $150, depending on the plan you choose.
Why Home Warranties Have Deductibles
A home warranty deductible basically covers the cost of labor, i.e., it is generally paid to the service technician who comes to diagnose and fix the problem. It allows the home warranty companies to share costs with homeowners when they file a claim. It is similar to the concept of co-pays in insurance. It is also meant to reduce the moral hazards of items malfunctioning due to neglect or lack of maintenance. Deductibles also cushion the home warranty company from excessive losses due to very pricey repair or replacement services.
Costs associated with a home warranty plan
There are a few terms you need to know regarding the home warranty costs mentioned in your service contracts, such as a premium and a service fee.
The monthly or annual premium is what you pay to get coverage for unexpected home systems or appliance breakdowns from the home warranty company.
The policy premium applies regardless of whether you use it or not.
Service fees are more like co-pays, paid directly to the technician each time a claim is submitted and they are called out to diagnose and repair the problem.
The cost of the home warranty coverage and deductible may differ according to the plan you purchase and the place you live. There are various home warranty companies that allow you to customize your premium and service fee payments. Some offer deductible options, while others have a standard deductible. But, there are few home warranty companies that do not charge any deductible.
With customizable plans, if you choose to pay a higher service call fee, your premium will be lower, and vice versa. To make this decision, you need to consider how many claims you will make over the policy duration and choose accordingly.
How Do Home Warranty Deductibles Work?
The deductibles or trade service fees are generally paid to the service technicians when they visit your home after you submit a claim. The entire scenario usually plays out in the following manner –
When the service technicians visit, they’ll first inspect the damage and then provide the cost to the home warranty company for the repairs. If the repairs exceed the contract limits, the homeowner may have to cover the repair fee out of pocket.
If the technicians can’t perform the actual service, the company may offer a cash payout. The amount is subject to the terms and conditions of the coverage caps in the contract.
Some home warranty companies also allow customers to choose their own contractors.
Generally, there is a labor and parts guarantee for 30-90 days, respectively. If the item breaks down again due to a recurrence in this time period, you may not have to pay a TSF again.
If two separate service providers are needed to resolve an issue, a second claim should be filed and consequently, a second trade service charge has to be paid. For example, let’s assume the oven malfunctions with a burnt out part, and you need to make a claim for repairs. The technician arrives and you pay the first TSF for the oven repair.
If you happen to find another defect like a malfunctioning electrical outlet where the oven is plugged in, you need to file a separate service request. Then the company will dispatch another technician, who can solve the electrical system problems, and you will be required to pay a second TSF for the electrical outlet repair.
Who pays the trade service fee?
Homeowners pay the trade service call fee to each trade professional (plumber, electrician, etc.) that a home warranty company sends to provide the required service. It covers the labor costs for the home warranty contractor to run diagnostic tests to find out what caused the issue. In case it is a seller or buyer warranty, the seller or buyer or realtor pays the TSF, depending on who purchased the plan. In rental properties, it may be the landlord or tenant, based on the rental agreement.
Comparing deductibles of top home warranty companies
Here is a list of the deductible of some of the top home warranty companies:
How to choose a company for an affordable deductible?
If you have the option to choose your home warranty deductible, you need to consider higher out-of-pocket costs in the short term versus a lower deductible in the long run.
There are a few steps you can follow to choose a home warranty company for an affordable deductible:
You can ask for feedback from a friend or a neighbor about their experience with the home warranty service.
You may discuss your situation and warranty needs with the company representative or real estate agent to ensure you understand the company coverage details and the deductibles applicable.
Always make sure that you read the policy booklet and contract thoroughly so that future conflicts are minimized. Also, ensure that the company you choose comes highly recommended and is well-reviewed, so you can determine if they are right for you.
Use our home maintenance calculator to find out your estimated annual costs without a home warranty. You’ll be able to figure out whether the company coverage and deductible are adequate.
Trade call fee for repeated service calls
Homeowners will be charged a service fee again if they request a service visit for the same appliance. However, if the covered items break down within the guarantee period, you don’t have to pay the service fees the second time around.
So, it’s always a good idea to see if the warranty provider offers any guarantee on repairs and workmanship.
Final Word
A home warranty offers repairs at a comparatively lower price and can help you avoid spending thousands of dollars on appliances and systems such as a broken air conditioner or dryer. Most of your major appliances and systems with undetected pre-existing conditions will be covered if they malfunction due to regular wear and tear.
The deductible is a service call fee, and it usually starts at $65 (though a few companies may offer lower TSFs). If you’re concerned about the deductible on your home warranty plan, keep in mind that it will be less than the actual repair cost. Otherwise, without a home warranty, the repair and replacement of your home system and appliances can burn a hole in your pocket. As a result, it is a pretty good deal when the average retail repair call for a water heater is more than $600, but all you have to do is pay your service fee if it is covered by the home warranty!
Frequently Asked Questions (FAQs)
Q.
Are home warranties tax deductible?
A.
Home warranty premiums can be tax-deductible if the building or home is like a home office or has been rented out, thus producing income. In these cases, the homeowner may be able to consider the premiums as a deductible expense.
Q.
Which Home Warranties Come with No Deductible?
A.
There are few companies that provide home warranties without service trade fees or deductibles. Here is a list of such companies:
A trade call fee (TCF) is a payment due when a service provider visits your home. It covers the labor costs for the home warranty contractor who comes out and runs a diagnostic test to determine what caused the failure. As long as the problem is covered under the home warranty contract, this is usually the only payment you have to make. The cost of TCF may vary on the state and home warranty plan.
Q.
Can a home warranty payment be deducted as a sales expense when it is part of a home sale?
A.
If you buy a home warranty for your primary residence, it isn’t tax-deductible on your federal return. The IRS does not consider home warranty cost as a selling expense when you’re noting the gain or loss from the sale, as part of your income tax calculation.
Q.
What if the repair cost is less than the deductible on a home warranty?
A.
You need to pay a deductible or a service fee on every claim irrespective of whether the repair cost is less or more than the deductible on a home warranty.
Q.
Is home warranty deductible on rental property?
A.
The cost of a home warranty on a rental property can be termed as an operating expense, which qualifies it to be tax-deductible.
Q.
What is the deductible for a Sears home warranty plan?
A.
The service call fee or the deductible for a Sears Home Warranty plan ranges between $75-$100, depending on the plan you have selected.
Q.
What is the deductible on specialty items for America’s preferred home warranty?
A.
America’s Preferred Home Warranty standard plan offers three deductible plan options to choose from: $50, $100, or $125.
Q.
How much is the deductible for HMS home warranty?
A.
HMS Home Warranty has been acquired by Cinch Home Services. Cinch gives a choice of 3 deductibles – $100, $125, and $150.
Q.
Does the home warranty deductible go up when used?
A.
No, the home warranty deductible doesn’t go up after being used. It is a fixed amount that is charged by a home warranty provider to a homeowner for each repair.
Q.
Is it different from home insurance deductible?
A.
The homeowner’s insurance deductible is the amount you must pay out-of-pocket before the insurer pays your claim. Once you pay your deductible, you will receive your insurance company’s payment minus your deductible.
Q.
Can you purchase a home warranty at any time?
A.
You can purchase a home warranty plan at any time you feel the need for it and regardless of the age of the home, systems, and appliances. You can even purchase it through a real estate transaction where you may get a discount on the home warranty if you purchase it within 30 days of closing.
