The concept of a home warranty seems quite attractive to a new homeowner. Imagine the perk of not having to cough out a huge sum of money in case the dishwasher or any major appliance breaks in the duration of the coverage. That is IF it breaks.
That hypothetical situation brings up the age-old question of whether you really need a home warranty or not. In the first place, what is a home warranty and why is it important/not so important in your life?
Home insurance vs. home warranty
Let us first make this clear: home insurance is not the same as a home warranty. The former covers a wider coverage and protects the home from risks like man-made or natural disasters and even property crimes. On the other hand, a home warranty is an agreement between a homeowner and a home warranty company that if a home’s major appliances or components go on the blink, the home warranty company can provide discounts for repair or replacement.
Obtaining a home warranty policy
A home warranty policy typically provides coverage for a single year, though there are options that allow for up to three years. Home warranty policies can be obtained by the buyer or by the seller purchasing the policy for the home on behalf of the buyer. The latter option is standard in many parts of the county as it allows the seller to walk away from the property worry-free. Why worry-free? The seller basically transfers any costs of repairs or replacements on the home to the home warranty company, notwithstanding the condition of the home fixtures or appliances covered by the agreement/contract.
Cost of home warranty policies
Home warranty policies can range from $300 to $500 depending on the amount of time and appliances they will cover. After the expiration date, the homeowner has a chance to renew his or her coverage for a slightly higher fee. A property’s age and size will generally not affect the cost of the home warranty. Then there is what is called a service call fee given to every contractor called by the home warranty company for repairs. That is on top of the annual premiums.
How home warranties work
The home warranty comes into play once something breaks. Once an appliance or home fixture (e.g., furnace, plumbing, electrical system) stops working, you call the malfunction in and the warranty company gets in touch with their allied contractor. The contractor calls you to set an appointment date and then handles the issue. The process is repeated each time an appliance breaks, for as long as it occurs within the period of the warranty.
When an appliance breaks down, the contractor/service provider will be the one to assess whether it can still be fixed or it needs a replacement. This appliance will be replaced with a brand-new one once the contractor verifies that it indeed needs replacement.
The good news is that you avoid having to pay an exorbitant price from your own pockets to purchase a brand-new appliance. The bad news is that you do not have the option to choose the model or brand of the replacement unit. Plus, you are still not exempted from shelling out money for the transaction.
Items not covered
Warranty agreements have limitations to their coverage. You as the homeowner should be well-informed about these limitations as these can spell the difference whether a home warranty is really necessary or not. Some items not covered by a home warranty include:
●Anything broken before closing the sale
●Pools or spas (but these may be added to the coverage upon request)
●Outdoor items like sprinklers
A gray area that causes many disagreements between homeowners and contractors is the issue of “proper maintenance.” The previous homeowner may not have been maintaining a certain appliance well but it still kept on functioning until it finally broke down after the new homeowner moved in. Some shady warranty companies will still pin the blame on you for “improper maintenance” and deny you your claim.
Home warranty insurance should cover air conditioners, ranges and ovens, water heaters, dishwashers, doorbells, and garbage disposals, and other major appliances. You should make sure to know what is and isn’t covered by carefully reviewing contract terms of the home warranty before signing on the dotted line.
What home warranties can really offer is peace of mind in the knowledge that after buying a home, you no longer have to spend a crazy amount of cash for any major item at home that stops working. However, the possibility of nothing breaking down within the coverage of the warranty does happen, too. This is among the reasons why many are hesitant to get one. Others feel more at ease just setting up an emergency fund in case of repairs, replacements, and other unforeseen circumstances instead of paying pricey premiums.
So take the time to study your options regarding the need for a home warranty.