Are Home Warranties a Waste of Money
When you buy a home, even a home that is not new, there is an excellent chance you will be offered a home warranty as protection against costly unexpected repairs. It may sound like a primary form of financial security, but is it the safety net that homeowners expect? Let’s find out if Home Warranty is worth it.
The Home Warranty is also called the Home Protection Plan. It is an annual service contract covering your home’s major appliances and systems when they break down due to common breakdowns. This type of protection from a high-end home warranty company can save you expensive costs on repairs and replacements.
Imagine a week after you move into your home, you turn on the air conditioning, it doesn’t work, your dishwasher suddenly shuts off, or the furnace goes out in the winter.
The availability of a home warranty can help reduce the financial burden that new homeowners face when they have issues with large items or home systems. You will pay for the warranty in advance, but the savings may be worth the extra cost. Here’s an overview of a home warranty, how much it costs and whether or not it’s worth it.
What Is A Home Warranty?
A home warranty is a contract of service that pays for the repair or replacement of covered items, such as large kitchen appliances and electrical, plumbing, heating, and air conditioning systems. The warranty does not cover windows, doors, or other structural features. Owners cover the insured losses if the home and belongings are damaged or lost due to theft, fire, or other hazards.
Be careful not to confuse the concept of a home warranty with home insurance. Home insurance covers many things, such as the risk of unforeseen damage to the home’s structure due to fire or flooding, which is essential with most mortgages.
How Does a Home Warranty Work?
Before signing up for Home Warranty, inspecting the home to verify that the systems are correctly installed and maintained may be worthwhile. A home inspection report can also tell you which devices are nearing the end of their life expectancy to understand better which items need the most protection.
Once coverage begins (usually 30 days after signing the contract) and a covered item stops working, you can call the home warranty company to file a claim or submit a claim online. Once the claim has been approved, within 48 hours, the company will arrange for a pre-approved service provider to come to your home to review the issue.
If possible, the technician will repair it immediately. If replacement is necessary, the technician will arrange a follow-up appointment to complete the replacement.
Difference between Home Insurance and Home Warranty
Home Warranties protect your home appliances and systems from damage caused by common breakdowns. Homeowner’s insurance pays for unforeseen events, such as fire and weather damage, but there is no benefit if your washing machine breaks down.
What Does a Home Warranty Cover?
Home Warranty covers the service, repair, or replacement of home appliances and systems. It only covers the items named in the agreement and lists the exclusions of the user’s responsibility. These may include refrigerator ice makers or beverage dispensers, pool and spa equipment, and equipment-specific components.
Some companies exclude Internet-connected components, which can be frustrating in today’s world of modern gadgets. It will help if you read the fine print to avoid unpleasant surprises when it discovers that what you think is covered is inaccurate.
You can purchase a home warranty that includes only the equipment or the system, and some plans are made for specific items. For example, if your refrigerator and dishwasher have a manufacturer’s warranty but not a washing machine or dryer, you may choose a plan that protects these items.
Typical home warranties cover the following systems:
- Interior plumbing
- Water heater
These appliances are typically covered in a home warranty:
- Air conditioning (sometimes optional)
- Garage door opener
- Garbage disposal
- Pool equipment (optional)
- Oven, range, or cooktop
- Refrigerator (occasionally optional, may exclude ice maker)
- Spa equipment (optional)
Advantages and Disadvantages of a Home Warranty
Some people say that home warranties are good; some say they are wrong. So what is reality? To help you decide for yourself, look at the advantages and disadvantages.
No one wants to buy a home to have an AC break in the middle of their first summer there. A home warranty believes in giving you peace of mind about such things.
Here’s how Home Warranty helps:
Protects You from Unplanned Expenses
The warranty can help you cover the cost of repairing systems and expensive equipment that break down when you don’t have enough money to protect it.
Saves You Time and Hassle
If a home appliance breaks down, you have to claim with your warranty company, and they will handle the rest. Sometimes people do not have enough time to waste collecting contractor quotes or repairing them.
Warranty agreements are full of ways for a company to make money by selling you short when it comes to the service you are getting.
Here are just a few examples:
The warranty company may refuse to pay because there is an old piece of equipment (which you did not know about) that should have been replaced many years ago. Therefore, since you did not properly maintain the devices, they deny your repair claim.
Repair instead of replacing
The company may insist on repairing a device even though you want to replace it as it has broken down several times. But they can refuse to change it because it can still be technically acceptable even if it’s on its last legs.
You may find that the warranty company completely refuses to cover certain large stamped items (such as an ancient HVAC unit) or will not cover repairs because it does not cover your warranty plan.
Lack of choice
When it comes to repairs and replacements, you have little to say about the type of contractor your warranty company has. If they are unprofessional, there is nothing you can do about it. You won’t find much in the contractor’s brand and model of replacement parts.
How Much Do Home Warranties Cost?
Home warranties cost hundreds of dollars annually, paid in advance or in instalments if the warranty company offers a payment plan. The project’s cost depends on the type of property; single-family detached condo, townhouse, or duplex and whether the homeowner buys a basic or expansion plan.
The price usually does not vary with the property’s age unless the home is brand new, which increases the cost of coverage. The square footage of the house also does not affect the price in most cases unless the property exceeds 5,000 square feet. Separate structures are not usually included in the basic policy but may be covered for an additional fee. The garage should consist of a standard warranty feature.
In addition to the annual premium, the Home Warranty service call fee (also called commercial call fee) is approximately $60 to $100 each time the warranty holder requests that a service provider come out to the home to review an issue. If the problem requires more than one type of contractor, the homeowner may pay a service fee for each.
Having a home warranty service does not mean that the homeowner will have no expenses on home repairs. The warranty will not cover some repair issues, whether the homeowner did not purchase coverage for the item or because the warranty company does not offer a range of repairs.
In addition, home warranties generally do not cover components that have not been appropriately cared for; more on this below. Furthermore, if the warranty company denies the claim, the homeowner will be responsible for repair costs and pay a service fee.
Is a Home Warranty Worth It?
A home warranty is worth it because you can’t predict when your home’s systems or appliances will fail. This type of home protection plan will give you peace of mind if something big in the house fails, and it will prevent you from spending hours looking for a reliable contractor in your area to complete the repair.
A home warranty may not be necessary if you buy a new construction home. Your home will have brand new equipment and systems under the manufacturer’s warranty. A manufacturer’s warranty protects devices if they fail due to defective materials or poor quality.
The manufacturer’s warranty is generally valid for one or two years only. They do not cover systems and devices that break down due to standard wear and tear, so a home warranty after the manufacturer’s warranty has expired.
We recommend buying a home warranty if:
- You may want to limit out-of-pocket payments for repairs or replacements for home systems and appliances.
- You own an old house.
- You are buying a home for the first time and want protection for all your systems and devices.
- You plan to sell your home, and you want to attract potential buyers.
- You are new to an area and do not know any local repair technicians.
Are Home Warranties Worth the Money?
Although you will have to pay an annual premium for a home warranty, the benefits can far outweigh the repairs. You can cancel every penny spent on a home warranty with just one service call a year.
For example, the cost of repairing a water heater is $546. If you pay a $300 premium for your warranty and a $100 service fee for water heater repair, you will still have $146 that you can pocket for other household expenses.
Home Warranty or Home Buyer’s Warranty is an annual service contract where you pay a fixed fee to protect yourself from the high cost of repairing or replacing your home’s major appliances and systems that break down from common breakdowns.
A home warranty is not the best solution for homeowners and comes with risks and hidden costs. If a seller wants to give something, it certainly won’t hurt. Before you buy it, read the fine print on the home warranty contract and carefully consider whether the warranty is likely to be paid.
Homeowners who will feel more comfortable with a home warranty and sellers who want to offer a warranty to the buyer should also do careful research to find a reputable home warranty company.
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