If you have ever bought a home, then you have probably been offered a home warranty, but most consumers do not really know what these plans actually offer to deliver for your money.
Home warranties are not actual insurance policies. Instead they are a type of service contract. Just like the warranties that cover your computers or appliances, a home warranty is a company’s guarantee to pay for the repair or replacement of certain parts of your house. House insurance, by contrast, covers the costs if your house or its contents are lost or damaged through fire, theft or other causes.
Most basic home warranties will cost around $350 to $500 per year. Most warranties will typically cover kitchen appliances, water heaters, furnaces, sump pumps, whirlpool tubs, and exhaust and ceiling fans. The average enhanced plan, costing an extra $100 to $300, provides added coverage for things like washers and dryers, air conditioners, garage door openers and refrigerators. It is possible to have optional items added for additional cost, such as septic systems and pools.
Is a Home Warranty the Right Choice for Your Needs?
Home warranties come in a number of different forms. The seller of a house may offer one year of free coverage to act as an incentive to a buyer, with the owner having to cover the premiums after the first year expires. Real estate agents will sometimes offer a home warranty to its clients in appreciation of their purchasing of a home through their services. Some people who have bought an older home feel that a warranty is necessary because of the increased risk of deterioration. Other buyers figure that they will be better off having some savings set aside for emergency repairs or replacements.
The only way to decide what is right for you is to look at your specific needs. Compare the ages of your appliances and equipment to their expected lifespans. If you have a lot of expensive components that are nearing their life expectancy, then a home warranty is probably a good idea.
Home Warranty Pros
- Unless you are buying a brand new house, your home systems and appliances will have some wear and tear. A home warranty will quickly pay for itself after a few repairs or one replacement per year.
- One stop shopping for home repairs. Having a home warranty means having a single service provider that you can develop a relationship with. Instead of having to trawl the internet every time something breaks down, you have one reliable source for all of your repair needs.
- Your repairs and replacements are covered for the near future. Not all service providers will offer guarantees for their repairs and replacements, so having a home warranty will add peace of mind when things break down that you will not be paying for another repair any time soon.
Home Warranty Cons
The biggest problem with home warranties is that people usually do not read the fine print, and end up disappointed when the reality does not meet their expectations. Before purchasing any home warranty, be sure to read the contract to understand precisely what it covers.
Many contracts do not provide coverage when:
- The appliance was not maintained.
- The appliance was not correctly installed.
- The appliance was too badly damaged and should have been replaced earlier.
- There are many additional possible surprises in home warranty contracts.
Do not assume:
- That the policy will automatically replace faulty components. The company may insist that they will only repair it.
- That you can choose the service provider. Most home warranties will require that you use their contracted service providers.
- That the warranty will always cover the whole cost of the repair or replacement.