It’s every new homeowner’s nightmare. You’re finally settling in your home, and one evening after dinner, your dishwasher leaks all over the floor. Or you turn on the air conditioner, and nothing happens. Money’s tight right now, and expensive AC repair bills or spending $500 on a new dishwasher is the last thing you need.
Darn. Should you have bought a home warranty? Maybe. Maybe not. Let’s break down home warranties and see how and when they benefit homeowners.
What is a home warranty?
A home warranty covers a specific set of major appliances and home systems from defects in quality and materials. These include roofs, HVAC units, kitchen appliances, washers, dryers, pool equipment, and some plumbing, including wells and septic tanks.
How do home warranties differ from homeowners insurance?
They may seem similar, but homeowners insurance and home warranties function differently. Typically, a home warranty covers repair or replacement of the home’s major systems and appliances for a one-year term. It’s not issued by an insurance company but by a home warranty company.
On the other hand, homeowners insurance covers a home’s structure and belongings in the event of known perils, which are listed in the policy. These could include weather events like hail damage, floods, fires, vandalism, and theft. For example, if a large tree limb falls and damages your air conditioning condenser during a wind storm — a known peril — you’ve got a homeowners insurance claim. However, if your air conditioner goes on the fritz and starts blowing hot air, that’s when you use a home warranty. Also, your lender will require that you have homeowners insurance, but home warranties are entirely optional.
How much does a home warranty cost?
The cost of a home warranty depends on several factors, including the size of the home and whether or not you select add-ons – maybe you have a hot tub not included in the basic plan – that will cost extra. But, in most cases, the annual average cost of a home warranty ranges from $300 to $1,600, broken down into monthly payments. Plus, expect to pay a service fee of approximately $60 to $100 each time a service tech visits.
Who calls a repair person each month? Why not pay out of pocket?
Of course, you could do that, especially if you bought a newer house or one that the previous owner had recently renovated. However, depending on the home you purchased, a home warranty also can offer peace of mind. Let’s say that when you were buying your house, your inspector found that your appliances were nearing the end of their lifespan or that the roof was fine for now, but you’d better check it next season. Replacing a leaky dishwasher when you didn’t expect it is bad enough but having to buy all new appliances would be a significant financial drain. And finding out that a year or two down the road, you had to put on a new roof, a home warranty might have served you well.
However, if your appliances are already covered by extended warranties, and the roof and septic tank are solid, you could easily skip the added expense of a home warranty.
Can I choose whoever I want to make the repairs to my house?
You can recommend someone or a company, but the provider has the final say in who they send out. Most likely, they will select one of their independent contractors.
What if the seller offers a home warranty?
Although that sounds like a pretty good deal, you should read through the warranty to spot any limitations because there’s no incentive for a seller to buy an expensive warranty for someone else. But buying the least expensive and still touting a “free home warranty” sounds practical, if shady. So be skeptical and grateful if the seller purchased a good warranty.
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What‘s not covered by a home warranty?
As with any warranty, each plan has different options, so it’s essential to read the fine print and ask questions. But, typically, a home warranty doesn’t cover the following:
- Improperly installed equipment or appliances
- Failed maintenance
- Pre-existing conditions
- Improper usage
- Cosmetic damage
- Repairs over the coverage limit
What to look for in a home warranty company
Researching home warranty companies isn’t a ton of fun, but it’s necessary to get one that covers your needs. You’ll want quotes from multiple providers to compare pricing and coverage options. And make sure to read each service contract carefully to familiarize yourself with any coverage exclusions.
You can ask your real estate agent to recommend a warranty company but be aware that some agents and their offices are partnered with some of these. If you’re not impressed with their recommendations, you’re under no obligation to make a purchase.
Pay close attention to these tips when selecting a home warranty company:
- Know what the company’s service agreements (home warranty plans) cover. These agreements determine which appliances and home systems they will protect – and under which conditions.
- Don’t gravitate to the cheapest company. You need to know the plans to determine the best one for your needs. So, for example, maybe your house has a new kitchen but the original HVAC system. That least expensive plan might not include coverage for the air conditioner, and that’s likely what you’ll need repaired or replaced before the new stove.
- Know the company’s limits and exclusions. These are often in the fine print, so look carefully. Every home warranty company has limits and exclusions on coverage. It’s how they can afford to cover more homeowners.
- Know the exact cost of your specific warranty agreement. Coverage, limits, and exclusions all play an integral part in the plan’s price.
- Find out if the company uses licensed and insured service technicians. A legitimate home warranty company will hire licensed and insured independent service contractors.
How to find a home warranty company
Use your network of friends, colleagues, family, and neighbors to see if they have a company they like. Then head to Google and start researching. Check the Better Business Bureau’s website and type in the company name and “complaints.” If you find a company with only a couple of negative complaints and lots of raves, don’t necessarily pass it up. It’s not possible to please everybody.
In the end, is a home warranty worth it?
You have to weigh the pros and cons for your situation. You could pay the annual premium for a couple of years and never have any issues with your home. That’s money paid to cover your peace of mind.
On the other hand, replacing an air conditioning unit can average between $3,000 to $6,000. Likewise, installing a new water heater, including labor, will set you back between $800 to $1,600.
So, you can see that if you don’t have money earmarked for these expenses, a home warranty can pay for itself and then some.