Home Warranties: Are They Right for You?

If you’ve ever purchased an appliance, you’re probably familiar with the warranty card or paperwork that came with it detailing what responsibility, if any, the company that manufactured the appliance has if your product stops working. Think of it as a service contract of sorts. It’s good for a certain period of time and lists what’s covered and what’s not. Most likely, you have a drawer or file folder some place with these warranties in case you need them. A home warranty is very similar. It’s not an insurance policy though. You still have to get one of those in the event your home and/or contents are damaged due to theft, fire, or another cause. Home warranties are not automatically included in the purchase of your home. Some builders include them if you’re building your new home from the ground up. But if you’re buying an older home, you’ll want to weigh the pros and cons of getting a warranty, which cost a few hundred dollars a year.

What is a home warranty?

A home warranty is a renewable contract that provides repair and replacement services for a home’s major components and appliances. A home warranty fills in coverage where mandatory homeowners insurance may not apply.

What does a home warranty cover?

A home warranty can cover certain items like kitchen appliances, HVAC, water heater, plumbing, electrical, and in some cases, washer/dryer and even pool systems. You can often expand your plan to include additional items as well. Pay special attention to exactly what’s included on the contract; coverage only applies to systems and appliances specifically mentioned. Also, what’s covered varies by location, company, and plan.

How is a home warranty different from a home insurance policy?

You may think, well I already have an insurance policy — why would I need a home warranty as well? And that would be a valid question. First, you should understand the differences between the two. Homeowners insurance covers the house structure and your personal possessions. It’s hazard insurance in case of damage by fire, water, theft, etc., while a home warranty covers specific systems due to age or wear and tear. Let’s suggest you have a pipe burst. If plumbing is covered in your home warranty, the pipe itself would be covered for repair or replacement. However, the warranty would not cover the damage the burst caused — that would be your homeowners insurance policy.

Is a home warranty right for you?

To put it simply (or not so simply), home warranties are right for some and wrong for others. It depends on several considerations, such as warranty coverage, the likelihood that you’ll need to fix something, and how comprehensive your manufacturer’s warranties are. Another really important factor is whether you’re the type of person who likes the peace of mind knowing you won’t pay out-of-pocket for big ticket items. When you buy a home, you probably expect some things will eventually break. Are you a decent saver that’s prepared to pay hundreds to thousands of dollars if your washing machine, refrigerator, or other major appliance breaks? Only you can decide what’s right for your situation. If you’re unsure if you’ll need a warranty, one suggestion is to determine the age of your appliances. That should help give you an idea of when those items may need to be replaced. Will you be financially prepared to manage that replacement expense, or would a warranty be a better option?

Let’s discuss the advantages and disadvantages of a home warranty a little more.

Pros

Home warranties are designed to protect you against unforeseen, expensive repair expenses. If you don’t have a good emergency cushion saved up (or if you want to protect your emergency fund), a home warranty may good decision for you. Do you have really expensive taste in appliances? It might make sense to cover them with a warranty. But keep the manufacturer’s warranty in mind as well. For those who don’t enjoy tracking down a a contractor, you may like the convenience of knowing exactly who to call when an appliance stops working. You’ll only need to remember one number, or even just an email to request a repair. Another consideration is that home warranties are relatively inexpensive. If you do need to file a claim, the home warranty could potentially pay for itself.

Cons

While a home warranty may be right for some home buyers, many may decide that the drawbacks outweigh the pros. One important point where a customer might be dissatisfied is that you must go through your warranty company to arrange repairs, which means using their specified contractors. Don’t like who they’ve chosen? Too bad because you can’t shop around for your own. Also, if you need a repair, you may have little to no say in the brand or model of your replacement item. Another thing to consider is that some warranty companies may charge additional fees for inspections or frequent service calls. Also, keep in mind that many warranties have dollar limits per year and per repair. There are many gray areas within some warranties, such as what’s considered proper maintenance. Sometimes, home warranty companies will not cover items that have not been properly maintained, so you can imagine the headache that may cause. You may think you’ve taken great care of your appliance. But what really matters is the judgement of the warranty company. Pay special attention to any exclusions, like proper maintenance, that your warranty may have.

Before committing, make sure to read the small print of the warranty so that there are no surprises.

If you’re unsure of the value of a home warranty, you may want to set up a home repair fund and make deposits each month into the account so that you’re not surprised by repairs or replacements. If you decide later you’d like a home warranty, you can get a quote and see if you’re eligible. Most home warranties purchased after closing have a waiting period before you can start calling for service. Many also have pre-existing condition clauses that prevent claims on items that were already broken or working improperly before the warranty was purchased. Make sure that you know exactly what you are buying and if the cost of the warranty will offset any repair expenses not covered by a manufacturer’s warranty. As with any contract, do your research before signing any paperwork. You decide — is the peace of mind a warranty offers worth the additional cost?