Owning a home gives you the freedom to create a living space to suit your personality. While it’s fun to paint the walls a pretty color or select new furniture for a room, you can get a little nervous when things start to go awry. First, it’s the air conditioner grinding to a halt. Then the dishwasher quits working and won’t turn on.
Home warranties are designed to help alleviate some of the costs associated with a major system or appliance breakdown. You’ll pay for the warranty upfront, but the savings can quickly add up. Read on to discover what a home warranty is and whether it’s the right choice for you.
What is a home warranty?
Think of a home warranty as a service contract. When specific systems or appliances in your home break down, a home warranty will pay the cost of repair or replacement, depending on what is needed. For example, if your dishwasher won’t work, you’ll file a claim with the home warranty company, and they’ll send out a technician to assess the problem. They’ll either bring it back to working condition or replace it.
However, there are limits.
What does a home warranty cover?
A home warranty is not the same as home insurance. Home warranties offer protection for things that may break down with age or regular wear and tear. Home insurance, on the other hand, protects your home from damages that may occur from an event, such as a fire or natural disaster.
Home warranties won’t cover anything regarding the home’s structure. Doors, windows, floors and other structural features fall outside a home warranty. They also won’t protect against pre-existing conditions.
Instead, home warranties are designed to cover specific appliances and systems that are spelled out within the contract. Home warranties often cover parts and major appliances you use throughout your home, such as refrigerators, stoves, washers and dishwashers. Most plans will typically cover a home’s major systems, such as the water heater, HVAC, plumbing and electricity.
How do home warranties work?
Home warranties give you added protection in case of a system or appliance failure. Instead of covering the repair or replacement on your own, the home warranty helps contain those expenses.
Home warranties are available as either monthly or yearly service contracts. They usually provide you with a fixed service call fee and an annual spending limit. Of course, you’ll have to check the home warranty you’re considering for the complete details.
Then when a system or appliance breaks down, you call the home warranty service team. They’ll connect you with a technician who can provide the necessary repair work.
If you don’t have money set aside for major repairs, it can be a shock when something breaks down and needs attention. HomeGuide estimates that HVAC replacement can be up to $11,000 or more. Add in ductwork repair, and it can easily top $16,000.
Are home warranties worth it?
A quick search online will leave you questioning whether home warranties are worth the cost. Homeowners start to feel cheated when they aren’t clear on what’s protected. Be sure to read the contract carefully and understand its terms.
Consider a home warranty:
- If you’ll struggle to cover major expenses out of pocket. For example, many new home buyers purchase a home warranty because closing costs and down payments leave their savings accounts a little short. This provides added protection until you can rebuild those funds.
- If you purchase an older home and aren’t sure how well the appliances and systems are working. Be aware that the warranty might not cover your repairs if you have older equipment that can’t be repaired or replaced with similar equipment. Carefully read the warranty to be sure you’re covered. Likewise, if an inspection reveals that an appliance or system is nearing the end of its lifespan, a home warranty may not provide complete protection.
- If you’re new to an area and don’t have trusted resources to call. In these situations, a home warranty can provide immediate protection while you build up your local contacts.
Not sure if a home warranty is right for you? It might not be a good choice:
- If you’re building a brand new home. Typically, new equipment and systems will come with warranties that protect you as you move into a new house.
- If you have enough savings to pay for emergencies. If you feel comfortable that your bank account can handle emergencies, a home warranty might be insurance you really don’t need.
- If you have a complete log of significant equipment and system repair work. Some owners are meticulous in their maintenance schedule and keep a record of all work completed since installation. If you’re comfortable with the details, make a choice that best suits your needs.
Are home warranties right for you?
Think of a home warranty as an added insurance policy you hope you’ll never have to use. If you want extra peace of mind, a home warranty may be the perfect solution.
Do your research carefully, and check out potential insurers. Don’t trust quick online searches, as it’s easy to get high rankings without the substance to back them up. Instead, be thorough with your research, checking reliable sources like the Better Business Bureau for companies with high ratings.
Take the time to review the contract description and make sure you understand the coverage and limitations. Premiums, fees, payments and exclusions can all vary by company, so it’s a good idea to shop around.