Thinking About a Home Warranty? How to Choose the Right One.
Purchasing a home is a big investment—one that you want to protect in the furthest extent possible. One way in which you can do so is with a home warranty.
What exactly is a Home Warranty?
A home warranty is an annual service contract that covers the repair or replacement of important appliances and systems components (such as plumbing, electrical, and heating and air conditioning systems) that break down over time. In essence, home warranties promise to protect against certain mishaps not covered by traditional homeowners insurance policies.
You can generally purchase one of three kinds of home warranty:
- A plan for a particular appliance;
- A plan for all your appliances; or
- A plan for your appliances and systems (plumbing, electrical, and heating & air systems).
The Limitations of Home Warranties
Having a home warranty may provide you with some peace of mind, but you should realize that repairs or replacements are not guaranteed. Read the terms and conditions of your contract carefully. There are limits on how much the plan will pay out, but they depend on the kind of plan you purchase and the provider.
Also, home warranty contracts typically have a number of exclusions. For example, some policies will cover your refrigerator but not the icemaker that comes with it. Other policies may cover your hot-water heater but not the water tank itself.
And sometimes, if your appliance breaks under certain circumstances, it won't be covered. An oven, for instance, may not be covered if it stops working while in self-clean mode or if it's damaged by a power surge.
If a repair is considered too expensive, the home warranty provider might offer to replace the broken item instead. But in a situation like this, the home warranty company may give you only the depreciated value, requiring you to pay the difference out of pocket to get the same model you had before.
These plans typically don’t cover nonmechanical items such as windows or the structure of your home, for instance (the repair or replacement of these items could then be submitted as a claim to your homeowners insurance company).
Know What to Expect
The improper maintenance clause common to warranties can mean the new homeowner isn’t really protected if something goes wrong and the previous owner hadn’t maintained the system properly.
The homeowner may have little or no say in the model or brand of a replacement component, or may not like the job the company-designated contractor does.
In addition to the cost of the plan, there are probably going to be additional expenses. If you have a problem with an appliance or system, even one that's covered, you’ll have to make a copayment when the contractor comes in to do the work. Those fees range from $60 to $125 depending on the work that needs to be done
How to Decide
When deciding on home warranty companies and plans, get multiple quotes and compare the contracts between the companies. Focus on what part of your home’s systems and appliances you’re most concerned about failing in the next year. For instance, did you just get a new roof? In that case you probably don’t need to worry about adding roof coverage. However, if your HVAC system has never been replaced, that might be something to keep in mind when looking at what home warranty coverage to purchase.
Take a look at reviews online to see how other homeowners rank the them in terms of handling claims.
An Alternative Plan
A possible alternative to buying one of these plans is to self-insure. Instead of paying $400-$600 per year on a home warranty, homeowners can put the money into a savings account dedicated to home maintenance and product repair/replacement.
If you have any specific questions regarding buying a home, please feel free to contact us. One of our agents will be glad to assist you!