So you’re in the process of buying or just bought a new house. You’re at the settlement table and someone brings up the topic of a home warranty. At this point, you’re tired and you’re wondering if this is just a scam to squeeze a little bit more money out of you, or if you really should worry about covering the refrigerator if it breaks.
Today we’re going to focus on taking a little bit of the mystery out of the home warranty industry, and talk about whether home warranties are really worth the cost.
What is a Home Warranty?
As noted in our previous blog post about homeowner’s insurance, most of the systems in your house are not covered by your existing insurance policy. Your insurance covers damage due to fire or water (excluding floods), but what happens if your central air system breaks in the dead heat of summer?
A home warranty covers the integral systems that keep your house working. The HVAC system (heating and air), major appliances (refrigerator, washer & dryer, etc.), and electrical wiring/plumbing are all covered under most companies’ basic warranty plans. Optional or add-on coverage is usually available for additional components like pools, septic pumps, and well systems.
When it comes to the actual coverage, home warranties usually have an upfront expense of several hundred dollars per year. When you make a claim, there is usually an additional fee (a service charge) for a technician to visit your home and make the necessary repairs. If repair isn’t possible, the home warranty company will replace the system with a reasonable equivalent.
So if a home warranty covers all of these things that homeowner’s insurance doesn’t, why wouldn’t you want that?
Why Wouldn’t I Want a Home Warranty?
The number one complaint about home warranties is not that they are a scam. It’s that some companies, especially some disreputable ones, make it nearly impossible to receive reimbursement for a claim. For example, many home warranty policies require that systems be maintained according to the manufacturer’s instructions. In the case of a shady home warranty company, they might try to claim that a system wasn’t being properly maintained and therefore the service isn’t covered.
Another big complaint is that, in the event that a system is covered but the damage is irreparable and needs replacement, the home warranty company might impose a buyout instead of a replacement. In this case, the home warranty company might give you a check for the replacement, but it may be hundreds or even thousands of dollars less than you need to actually have the system replaced.
How Can I Make Sure I’m Covered?
There aren’t any guarantees, but there are some steps that you can take to avoid shady business practices and make sure you’re getting what you pay for when you buy a home warranty. To name a few:
- When settling on a home, obtain any and all records from service appointments for major appliances and systems (this is good practice anyway, but a reminder never hurts).
- Keep records from every service appointment that you have for a covered system after purchasing the home.
- If you are maintaining a system yourself, make sure that you follow the manufacturer’s instructions and recommended timelines (e.g., changing your air filters or having annual or biannual service performed on your HVAC system).
- If you have any problems with a newer system or appliance, check before performing any repairs or making service calls to see if your problem is covered by the manufacturer’s warranty or if there are any safety recalls for the product.
- Work with your real estate agent to make sure you’re picking a home warranty company that has a strong reputation and good coverage for reasonable rates.
- Review your warranty contract carefully so that you know what’s covered – managing your expectations and knowing what your policy covers is important for avoiding extra frustration when something breaks down.
The Bottom Line
Home warranties can be hit or miss, depending on the provider you choose to go with. But if you work with your real estate agent and/or your insurance provider to pick a reputable company, and make sure that you fully understand what’s covered by the warranty, then you’re less likely to experience heartache and more likely to benefit from the purchase. Maintaining critical systems per the manufacturer’s instructions and managing your expectations will go a long way when it comes time to have a major system or appliance serviced.
Alternatively, take the money you would have put into a home warranty premium and place it in a savings account to be used on repairs when necessary. Either way, it’s important to make sure you have a plan so that when something breaks, you’re not left out in the cold.