A home warranty is one of those gimmicky sales tricks, right? Or maybe there is really something to it and it provides peace of mind and saves money? What should be a seemingly simple decision, is not and can plague homeowners with back and forth justifications.
Many have a jaded view of home warranties and this is warranted (pun intended). I have always viewed them as similar to extended warranties on used cars or any of the other warranties added to routine purchases at electronic stores or online shopping carts. A lot is excluded in the fine print which can lead to issues and frustrations when making a claim. Not to mention the probability of actually using them is low and hence why they are profitable for the insurance company. Dave Ramsey provides his opinion and notes the statistical likelihood being a 12% chance you would use them!
If you have an established network of contractors for your home, save yourself the time and mental space of this decision. If, however, you are the type who suffers from severe anxiety when faced with a broken home appliance or even just thinking about one breaking, keep reading…
What is a Home Warranty?
First, do not confuse a home warranty with homeowner’s insurance. Home warranties are contracts with the issuing company to cover primary home systems and large appliances for a certain period of time. Most companies cover plumbing, electrical, and heating systems, as well as large appliances like refrigerators, dishwashers, clothes washer and dryers (in some cases), and heat pumps.
What Do They Cover?
Home warranties are akin to the insurance you are offered when you purchase electronics equipment at Best Buy, except you are purchasing a policy that covers multiple existing items in your home. Most home warranties are purchased by realtors and provided to recent homeowners as an ancillary gift, with coverage spanning the first year of homeownership. [If you would rather have a different gift, ask for one of these!
How Much Do They Cost?
In many cases, home warranties cost between $600 – $1,000. It does not seem like much for the potential benefit; however, Consumer Reports has long advised NOT purchasing these but rather, accumulating the dollars in a savings account for maintenance costs down the road. Read more to uncover why.
How do they work?
In the event that a household appliance stops working, you would call your home warranty company. They would then contact a local repairman they are contracted with and have them complete an evaluation. You would be responsible for a service fee (typically $75-$100), for them to evaluate your issue. Upon evaluation, they determine if your unit can be repaired, or if it requires replacement.
WARNING LABEL: Read the fine print
- Home warranties often have limitations and exclusions as part of the fine print in their contracts. Limitations can range from a policy maximum coverage amount to specific, excluded appliances.
- Keep in mind that appliances that have been misused, or poorly maintained are often excluded.
- Additionally, due to the “chain of command”, repairs and replacements can take longer. You also have no control over the repair company chosen.
- It is best to check provider ratings and reviews to ensure they have a long track record before purchasing a home warranty.