What is Home Warranty?
When I bought my home in 2009, it came with a one-year home warranty policy. On day 385, the refrigerator broke and I had not renewed the policy. So, what is home warranty?
That said, there are still a lot of valid pros and cons to getting a home warranty policy. In order to make an informed decision, you need to find out in explicit detail exactly what the policy will and will not cover.
The Basics
Most policies cover major appliances along with heating and cooling systems, as well as electrical and plumbing systems. Major appliances are generally considered items such as dishwashers, garbage disposers, ranges, ovens, microwaves, washers and dryers, indoor pipes, wiring, furnaces, air conditioning units, duct work, refrigerator and electrical panel.
Just like with every other insurance contract, you can buy a policy ranging anywhere from $250 annually to $1,200, the difference being in what is covered. The top end plans cover specialty items that are usually really big ticket things like swimming pools, garage doors and hot tubs.
The Pros to Having Home Warranty
Quite often, when a seller is getting ready to put their house on the market, they will utilize a home warranty policy as a selling point. For the buyer. It is a little bit of reassurance against appliances and systems going up soon after purchase, particularly when buying an older home.
How Old is Your Home?
One of the things you need to weigh before making your decision is the age of the systems and appliances in your home. Make a list of all of the eligible items and then consider their age and expected life. The next step, once you have done all your research, is to figure out, as closely as you can, what it would cost to replace the item and when it might need replacing. This information allows you to figure out the potential value of a home warranty.
Are You Good at Fixing Things Yourself?
If you are mechanically challenged like I am, or time challenged, it makes more sense to have a home warranty policy. Quite frankly, the thought of shelling out thousands of dollars to repair or replace my furnace is not very appealing! According to Tina Gleisner, the person who runs Home Tips for Women, it’s a good idea to have a home warranty “if you have too much going on to proactively manage your home.”
She goes on to state, “With a warranty plan, you get a single contact for repairs so you don’t have to make a lot of calls. You won’t need to spend a lot of time online researching for a good repair company, either.”
Reduced Rates
Another reason to have a home warranty? While you will also be responsible for a per service call fee, you typically get a reduced service rate that will give you substantial savings over what is usually charged for repair visits. That rate can also be lowered more when you have an upgraded policy.
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The Cons of Having Home Warranty
With all of this sounding so good, why would someone not want to buy a home warranty policy?
Unable to Choose Your Repair Person
One reason is you may have a favorite repair person you have dealt with for years and implicitly trust. With a warranty, you do not have a choice. Providers of warranty policies have contracts with service people.
Additionally, in some policies there’s no guarantee stating that a service person will be out to see what needs doing in x period of time, or when the repair will be done.
Some Properties Are Not Eligible
Some properties are not eligible for coverage. Usually, the warranty provider requires the home to be on a permanent foundation (meaning no mobile homes). Further, if it is an investment property or a home you have rented or rented out, it may not be covered.
Lack of Say
Another con is the provider decides whether or not the covered system or appliance will be replaced or repaired, and if it is going to cost them less to repair it than replace it.
Lots of Technicalities
Probably the biggest negative of all is that generally warranties only cover repair or replacement if the system or appliance has suffered from normal wear and tear and if the homeowner has appropriately maintained it… and again, that is the provider’s call. There are also ceilings on how much warranty providers will pay per system or appliance, per incident.
Warranty providers also exclude failures resulting from “acts of nature or acts of God,” because they figure that those items will be covered by the homeowner’s hazard insurance.
Other Considerations
Remember that policies differ from one another. If you are inclined to get a policy, you would probably do better with one that has a “repair or replace” guarantee. This means that if an appliance or system cannot be repaired, the provider has to replace it.
Realtors I spoke to also suggested staying away from policies that have obsolete parts clauses. Basically this means that providers are covered from having to repair or replace an item if parts for it are hard to find.
Another big issue to ask the provider about is what their company policy is about covering a system or appliance that has passed its life expectancy. Ask whether or not they will cover it for replacement. Ask plenty of questions and make sure you’re satisfied with the answers.
Whatever you decide, as with any legally binding agreement, make sure you read the terms of the agreement thoroughly, and if you do not understand it, find an attorney or friend to read it and explain it to you.