Your homeowners insurance will cover the damage if a tree falls on your roof or the house floods, but what if the air conditioner goes on the fritz in the middle of a heat wave or the washing machine breaks during the spin cycle? A home warranty can cover the price tag, but is it worth it and what will it cost?
Home warranties were not meant to replace homeowners insurance. The optional coverage was designed to cover home systems such as plumbing and electrical systems, heating and cooling systems, and home appliances such as the refrigerator, stove, washer and dryer, which are excluded by traditional homeowners insurance policies.
These warranties are generally purchased during a real estate transaction — and can help to seal the deal. Sellers often offer warranties to make their listings more attractive and to give buyers peace of mind. But what if you’re a buyer who wants to protect against unexpected expenses? Especially if your new home has older systems or appliances. Basic home warranty coverage can cost between $300 and $600 per year. Is it worth it?
Here are six questions to ask yourself before handing over your credit card.
1. Do I need a home warranty?
On new construction, most builders offer warranties that also cover new appliances. You may also get extended warranties on appliances and other in-home systems that are purchased with your credit card. In these cases, a separate warranty might be unnecessary. Consider home warranty options for older homes where systems and appliances are more likely to break.
2. What does a home warranty cover?
Different companies will offer different coverage but, in general, they cover appliances, heating, cooling, plumbing and electrical systems, including electrical panels, wiring, furnaces and air-conditioning units. Claims can be denied if problems are considered pre-existing, caused by incorrect installation or are the result of poor maintenance. Understanding what a warranty covers can help avoid surprise claim rejections. A home warranty may be worth it if you have a fair understanding of your home’s appliances and their conditions.
3. How much do home warranties cost?
In addition to the annual premiums, most warranties also have deductibles, which can range from $50 to $100 per claim. Covering extras like a swimming pool or hot tub could require paying additional fees to upgrade a traditional home warranty.
4. Who is offering the policy?
Countless companies sell home warranties. Before choosing one, check the Better Business Bureau, the National Association of Insurance Commissioners and National Association of Attorneys General to see if other consumers have lodged complaints. You don’t want to be working with an unscrupulous warranty company while dealing with a major home repair.
5. Have you read the fine print?
Home warranty companies often set out very specific terms and conditions for repairs. There may be additional home warranty costs hiding in the fine print of your contract. You may have to use their contractors or settle for having an old or outdated item repaired instead of replaced. In addition to getting information about the cost and coverage, read the fine print to learn how the coverage is put into action.
6. Are there other options?
Appliance insurance like Farm Bureau’s Residential Equipment Breakdown (REB) insurance offers a cheaper alternative to home warranties — a few dollars a month compared to up to $600 a year. REB’s special coverage includes TVs, computers, stereos, air conditioners, furnaces, water heaters, appliances and other electrical home systems— basically just about anything that you can plug in.
Purchasing a home warranty could protect you against unexpected and costly home repairs, but it’s important to understand the finer points of these warranties before making a purchase.