Things You Need to Know Before Purchasing a Home Warranty
Have you considered buying a home warranty on a home you’re about to purchase or already own? They can be a great way to protect yourself financially.
However, there are things you need to know before purchasing a home warranty, including the vital questions to ask so you fully understand the policy, its limits, cost, and exactly how it works.
What is a Home Warranty?
A home warranty covers systems and appliances that break down through regular use. It’s a contract between you and the warranty company that promises to cover the cost of repairing or replacing the system or appliance.
A home warranty can be only for home systems, only for appliances, or a combination of both. The more it covers, the more it costs, but you also get more protection.
Most home warranty companies have strict rules regarding maintaining the systems or appliances and things they will not cover. Like any financial protection, each company has different rules, so shopping around for the best home warranty requires thorough research.
How Does it Work?
Considering what you need to know before purchasing a home warranty will help you fully understand how the home warranty works.
When you invest in a home warranty, you pay an annual premium. This is the cost you pay whether you file a claim or not. It’s the cost of buying the policy.
You then have protection for the named items in the warranty, such as the appliances or home systems. Read the fine print carefully; each warranty has different coverages and exclusions.
If a covered item stops working, you file a claim with the home warranty company. Keep in mind you might pay a service fee for the contractor to visit your house. Some call it a deductible or an amount you must cover before the warranty covers the repair or replacement costs.
If your home system or appliance cannot be repaired, the home warranty company may choose to replace it. However, there’s no guarantee they’ll replace it with an identical make and model.
Do you Need a Home Warranty?
You might wonder if you need a home warranty. Is it worth it, or should you save the money and cover the cost of repairs yourself?
Here are the top reasons to consider a home warranty.
Peace of Mind
No one knows when things will break around the house. Think about the worst-case scenario, such as your HVAC system failing. Could you afford to replace it without having financial issues?
If not, a home warranty could provide peace of mind that you could repair or replace it, paying only the service fee or deductible, which is much less than the cost of a new or repaired unit in most cases.
You Don’t Have a Large Emergency Fund
You might consider a home warranty if you don’t have funds set aside specifically for emergencies. If a significant crisis could potentially put you in a severe financial bind, a home warranty can prevent it.
You Have an Older Home
If you bought an older home, you might not know the age or condition of every home system and appliance. A home warranty can protect you for a while, ensuring you won’t have to fork over a lot of money to repair or replace systems or appliances soon after moving into it.
You’re Selling your Home
Some sellers choose to buy a home warranty before selling their home. While buying a warranty before selling your home might seem silly, it can entice buyers. Giving buyers peace of mind that the home systems and appliances are covered for a few years can help them ultimately decide to buy the house.
Questions to Ask about a Home Warranty
Before buying a home warranty, you should understand the questions to ask the company. Like any policy, you should consider shopping around for quotes on different coverages. Some companies may cover certain things and not others, or some companies may charge higher premiums than others.
Here are the top questions to ask before buying a home warranty:
What Does the Home Warranty Cover?
Don’t assume a home warranty covers everything you want to be covered. Just like insurance companies have different policies and coverages, so do home warranty companies.
Ask what’s covered and what isn’t, including home systems and appliances. To get the best idea of what they will or will not cover, list everything in your home you want to be covered and ask one by one if they will cover it.
If the home warranty company doesn’t cover an item, it may not be a deal breaker for you, but you must know upfront what will be covered.
How Long Do Repairs Take?
In addition to determining how long it takes to process a claim, ask how long it takes for repairs to be completed. Even if a claim is processed, you must still wait for the contractor to complete the repair. While no one can predict when parts will be on backorder, a warranty company can provide estimates on the average time for most repairs.
What are the Warranty’s Exclusions?
All home warranties have exclusions. Avoid making the mistake of assuming everything will be covered.
Some common reasons they won’t cover an item include:
- Improper maintenance – The home warranty company may decline the claim if you didn’t properly maintain a home system or appliance. They can state that you didn’t properly handle the appliance or system, so it doesn’t fall under their coverage.
- Natural disasters – If your home has damage from a major storm or tornado, the home warranty likely won’t cover the damage. This is something that would fall under your home insurance instead.
- Pre-existing conditions – Most companies won’t cover pre-existing conditions or issues the system or appliance had before the warranty began. Some companies require homeowners to show that the system or appliance was working and properly maintained for 60 days before coverage began.
- Improper installation – If you didn’t have a professional install the system or appliance, or you did it yourself, it could void the warranty.
What Contractors Does the Warranty Company Work With?
When you buy a home warranty, you let the warranty company choose who services the system or appliance. So while you take the financial burden off yourself, you must be able to trust who they send to your home.
Since warranty companies must work with local contractors, you can ask them who they work with and do your research to ensure they are reputable. If they are contractors you aren’t sure about working with, you may want to consider a different home warranty company.
Also, consider looking elsewhere if a warranty company doesn’t disclose who they work with. You should know who you will be letting into your home, and this could be a red flag if they’re not willing to share this information.
What is the Cost?
Of course, you should know how much the home warranty will cost. You’ll pay an annual premium for the warranty; if you renew it (some companies allow this), you’ll pay the premium again.
The premium usually must be paid in full upfront, but you can ask about other options, including monthly payments. It’s usually cheapest to pay it in full at once, but some companies offer different options if you need to break it up.
The premium is the most considerable expense of a home warranty, but there are other expenses, such as the deductible or service fees.
How Much are the Service Fees?
You’ll likely pay a service fee each time you call for service because a home system or appliance broke down. The fee is per visit, so knowing what you must pay is essential. The service fee and premium usually go hand-in-hand.
The higher the service fee you accept, the lower the premium you’ll pay, and vice versa. To decide what’s right for you, determine what you can afford and when you’d prefer to pay. Would you prefer to pay more money upfront and not worry about high service fees, or would you rather take the gamble, pay the lower premium, and be on the hook for higher service fees?
How Fast Does the Warranty Company Address Claims?
Always ask a warranty company how long they take to address claims. In other words, ask what hours they operate. For example, are they 24/7 or only address claims during regular business hours?
In addition, ask the warranty company how long it takes them to get to a claim and how long it takes to process it. Remember, this is the amount of time you’ll be without your appliance or home system, and since you’re at their mercy for the repairs, you want someone you know will act fast.
How do you File a Claim?
Knowing how to file a claim with a warranty company is essential. Do they allow online claims, or must you call?
If they require you to call, you might be restricted to filing a claim during certain hours. If you can file online, you can file it immediately, even if they don’t process it immediately. Ensure you’re comfortable with the claims process and that it seems straightforward.
How Long is the Waiting Period?
Every warranty company has a different waiting period. Read the fine print and ask questions about it.
Most companies have a 30-day waiting period, but it could be longer. The waiting period is a way for the warranty company to ensure they guarantee appliances and home systems are in good working order.
For example, if you bought a home warranty today and filed a claim tomorrow, you knew the appliance or home system wasn’t working and are trying to get it covered. Warranty companies avoid that by requiring a waiting period.
Again, read the fine print, though, as some companies could have a waiting period regarding how long before the warranty becomes effective and another for how long before you can file a claim.
What Maintenance Tasks are Required for the Home Warranty?
Home warranties are only valid if you maintain the systems and appliances covered. For example, if your home warranty requires that your HVAC system be serviced annually, and you don’t, you could void your warranty. Likewise, if it stops working, the home warranty company can deny your claim.
Read the fine print for each system or appliance covered and ensure you do the appropriate maintenance to avoid any issues when filing a claim.
How do I Cancel Coverage?
If you decide the home warranty isn’t for you or you are selling your home, you should know the terms for canceling or transferring the home warranty.
Most companies allow you to transfer it to the next homeowner, but there may be a transfer fee. You may also be able to cancel the policy, but again, there may be specific terms you must follow.
How to Buy a Home Warranty
After asking all the right questions, if you decide buying a home warranty is right for you, here’s how to do it.
- Choose the coverage you want
Think about what you want to be covered in your home. For example, do you want home systems, appliances, or both covered? Conversely, do you want any appliances or systems excluded? Also, consider how long you want coverage, as that will determine where you buy your policy.
- Understand coverage caps
One of the most crucial things you need to know before purchasing a home warranty is the coverage caps. They are usually per system or appliance but affect your budget. If the cap is too low, you could be responsible for paying the difference for the system or appliance’s repair.
- Compare premiums
When you find a couple of policies that offer similar coverage, compare the premiums. Decide if you’ll pay in one lump sum or ask for monthly payments. Then compare the cost to the service fees or deductibles. Finally, look at the big picture to determine what it will cost.
- Read reviews
Look at sites like the Better Business Bureau, TrustPilot, and Google Reviews to see what others think of the company. Of course, there will always be negative reviews but look at the big picture. Overall, are people happy with them?
- Contact customer service
Finally, contact the customer service of each of the companies. See which provides you with the best service, and choose the company you want. Pay attention to how you can contact customer service, how they respond, and if they answer your questions in a way you’re comfortable with.
- Determine how to purchase a home warranty
You might apply for the policy online or have to do it over the phone. But first, ensure you understand the fine print and have the money to pay the required premiums to start coverage.
What is the purpose of buying a home warranty?
A home warranty is financial protection when home systems or appliances stop working. It covers the cost of the repairs after your service fee, usually for an annual premium. You must keep up with your home maintenance for the warranty to cover your home, but it can save you a lot of money in some situations.
Is a home warranty the same as home insurance?
No, a home warranty covers appliances and systems that stop working due to normal use and wear/tear. A home insurance policy covers your home’s structure and belongings from a natural disaster or fire. For example, a home warranty would not cover appliances damaged in a tornado, but a home insurance policy wouldn’t cover a washing machine that stopped working mid-cycle.
Why do real estate agents encourage home warranties?
Real estate agents encourage sellers to buy home warranties to give buyers peace of mind. A home warranty can make a home sell faster or for more money.
Is a warranty ever worth it?
You might wonder if a warranty is worth it. Like most financial decisions, this isn’t a one-size-fits-all approach. Instead, you must compare your financial situation to what the warranty will cover to decide if you’ll save enough money to make purchasing the warranty worth it.
Buying a home warranty can be a good investment in your home, especially if you properly maintain your home systems and appliances.
You can purchase home warranties for home systems, appliances, or both. However, before you do, there are things to know before purchasing a home warranty that can help you save money and ensure you get the coverage you want.