Home warranties are big business. One out of 5 homes in the U.S. has one of these policies that cover things that homeowners insurance doesn’t, from appliance breakdowns to plumbing problems to electrical issues. Some people swear by their home warranty; others have been ripped off by an industry that isn’t regulated in some states. A home is the largest purchase most people make in a lifetime. While it’s understandable to want to protect that investment, it’s important to know how to determine if you need to buy a home warranty.
Owning a house means that repairs and maintenance issues will come up. Even with home warranties, homeowners should budget for home maintenance. Experts recommend that homeowners set aside 1 percent of the house’s value each year for repairs.
Don’t let a seller-provided homeowner’s policy substitute for a home inspection if you’re buying a house.
1. See what a proposed home warranty covers.
Often, the homeowner warranty policy provides coverage for the repair or replacement of basic home systems, including electrical, heating, plumbing and major appliances.
Companies that offer home warranties may provide coverage for other items such as swimming pools and septic systems at an extra cost.
Ask what your costs will be with a home warranty.
Most warranties specify that you will pay the cost of the service call with the warranty picking up the remainder of the costs.
Annual premiums can range from $250 to $600 per year. The cost will be more for adding items or premium packages.
A builder’s warranty may differ from a standard home warranty.
3Know what to expect from a home warranty or builder’s warranty.
Scheduling can be a problem when using a home warranty company approved repair firm.
The home warranty company contracts with specific companies; you don’t get to choose.
Service technicians may try to sell you unnecessary services.
4Weigh the costs of repairs with the benefits of a home warranty.
If you buy a $600 policy that you use twice in a year, once for a stopped up sink and another to replace a heating element in an oven, then your warranty costs more than your repairs.
If you have a $600 policy that replaces a $3,500 air conditioning system, the home warranty has saved you money.
5Read the homeowner’s policy service agreement very carefully. You’ll discover that some policies have loopholes. Look for exclusions or conditions such as:
Pre-existing problems that aren’t covered.
Requirements that coverage for repairs start after the homeowner has paid for an upgrade of the house to current building code standards.
6Investigate a warranty company’s history and complaints before you sign, particularly if your state doesn’t regulate the home warranties industry.
Public companies will have annual reports available so you can check their financial stability.
7Forego home warranties if your appliances and home systems are relatively new. The cost of repairs are rarely as much as the warranty itself.
A home warranty policy may be a good idea for a house with older systems, particularly if money is tight.
Alternatively, if you have a decent emergency savings account, you may decide against the home warranty.
8Expect a builder’s warranty for a new house. Many are protected for the first year.
Builders who use subcontractors receive warranties from the subcontractors for materials and parts.
Pay for the repairs and replacements.
Home warranty companies tend to choose the cheaper repair over replacing an item.
Consumer Reports advises that major appliances more than 7 years old should be replaced instead of repaired. They should also be replaced if repair costs are more than half what the replacement cost would be.
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