The Top Benefits of a Home Warranty
Buying a home warranty is one of the most highly debated topics when purchasing a home. A home warranty protects your home when there is a significant breakdown. But the question remains – is a home warranty worth it?
Many people say no, but it’s important to understand the many benefits of a home warranty before deciding for yourself.
What is a Home Warranty?
A home warranty is a contract between the purchaser and the warranty company to repair or replace the home’s most significant components, such as the HVAC, electrical, plumbing systems, and major appliances.
A home warranty is in addition to your homeowner’s insurance and isn’t required by mortgage lenders, unlike home insurance. A home warranty is optional but can provide homeowners with many benefits.
Like any major decision, a home warranty has benefits, but there are also downsides you must consider.
The nice thing is that you can choose a home warranty for a brand-new home and an existing home. Some home sellers purchase home warranties before selling their homes to make them more attractive to buyers.
How Does a Home Warranty Work?
When you purchase a home warranty, you have coverage should a covered item, such as your HVAC system or refrigerator, stop working.
Each warranty has different terms and conditions, including the waiting period or the time between buying the warranty and making a claim. For example, if you have a 30-day waiting period, you cannot file claims within the first 30 days, even if a covered appliance or system breaks.
Warranty companies set the waiting period to protect themselves from fraudulent claims. So, for example, if you know your appliance is on the fritz so you buy a warranty and file a claim the next day, it would be bad for the warranty company.
Instead, you must wait a specific amount of time before filing a claim to prevent people from buying warranties only when they need them.
What Does it Cover?
What your home warranty covers depends on the type of warranty you purchase. Here are the different types of warranties:
- Home systems only – Home warrants for home systems only cover the major systems like electrical, plumbing, water, and the HVAC system.
- Appliances only – Home warranties for appliances only cover major appliances, such as the refrigerator, washer/dryer, microwave, and dishwasher.
- Combination – The combination warranty covers both home systems and appliances.
In addition to the systems mentioned above, home warranties may cover ductwork, home vacuum systems, garage door openers, garbage disposals, and spa equipment.
What Does a Home Warranty Not Cover?
Like any warranty or insurance, there are certain things home warranties don’t cover, including the following:
- Issues an appliance or home system had before you bought the warranty
- Unprofessional or incorrect installation
- Any systems or appliances under manufacturer warranty
- Damage caused by pests
- Damage from a separate occurrence, such as a leaking washing machine damaging your floor
- Cosmetic issues
Each home warranty has different terms and covers different things. Always read the fine print to understand what it covers (or doesn’t).
How Much Do Home Warranties Cost?
Home warranty costs depend on many factors, including what the warranty covers, the term, and your property size. On average, homeowners pay $350 to $600 annually for the premium, but there are other costs to consider too.
For example, if you want to add extended coverage, it could add $100 to $500 per year to the premium. There is also the co-pay, or the amount you must pay for each repair or visit, which is usually $50 or $100.
This means each time you call for a repair and a contractor comes out, you’ll pay $50 to $100 per visit. If the repairs are significant, the $50 to $100 may not feel like much.
In addition, your home warranty may have a deductible. Like insurance, you are responsible for this portion of the cost before the warranty covers anything. The deductible amount depends on the home’s age, condition, and the type of warranty.
The higher your deductible, typically, the lower your premium, but again it depends on what you need to be covered. For example, if you buy a combination warranty, the premium will be higher simply because it covers all systems and appliances.
Is a Home Warranty Different from Homeowners Insurance?
Home warranties and home insurance are often confused but are two different policies.
A home warranty protects your home system and appliances, but a homeowner’s insurance policy covers the entire home structure, contents, and personal belongings damaged in a natural disaster, such as a hurricane or fire.
Here’s a quick example.
A tornado hits your area, and you lose the use of three appliances, plus the home’s structure has been damaged. Your home insurance would cover the damages, helping you rebuild the home and replace the damaged appliances.
On the other hand, a home warranty would cover your appliances should they suddenly stop working, but not due to a natural disaster or other covered insurance events. Home warranties cover appliances and home systems from normal wear and tear issues, not extreme events.
Again, home insurance is a requirement if you have a mortgage. If you don’t carry home insurance, your lender will force a policy on you, adding the cost to your mortgage payment. Home warranties, on the other hand, aren’t required.
Can you Get a Home Warranty on an Older Home?
Every home warranty company has different requirements, but some cover older homes.
If you’re buying (or did buy) an older home, consider these factors when deciding if a home warranty company will cover it.
- Deductibles – Some home warranty companies charge much higher deductibles for older homes because of their higher likelihood of breaking down.
- Coverage limits – Read the coverage limits carefully to determine what the policy will or will not cover. For example, if the HVAC system is old and uses outdated technology, it may be excluded from the coverage.
- Dollar amount limits – Some policies limit how much they’ll pay annually. Read the section carefully when buying an older home.
5 Benefits of a Home Warranty
Now that you know how a home warranty works, let’s look at the benefits of a home warranty to help you determine if it’s right for you.
Like any financial decision, look at the big picture, deciding how much the warranty might save you, what conveniences it offers, and if you’ll use it to its fullest potential.
Here are the top benefits a home warranty may offer:
1. Protect your Finances
No one likes to think about their home systems or appliances breaking down, but it’s a part of life. If you don’t have an emergency fund saved, or you don’t have the money to cover a sudden large expense, a home warranty could protect your finances.
You must read the fine print to determine what a policy covers, but typically, you’ll pay a small percentage of the repair as your deductible and a set fee for the visit, but that’s it. A home warranty could save you thousands of dollars if your home has major issues.
2. Make Budgeting for Repairs Easier
Knowing how much you’ll pay for repairs can provide peace of mind. You can save the amount needed for your deductible and copayments without worrying about the high cost of replacing or repairing appliances.
Knowing how much to expect takes a lot of the guesswork out and ensures you’ll always have working systems, even when they break down. You also have some control over the fee you’ll pay for a contractor service call as you choose that when you choose your policy. The higher your fee, the lower your premiums, and vice versa.
3. Takes the Pressure of Handling Repairs Off You
When a home system or appliance stops working, it can be unnerving. You wonder if you should fix it yourself or call a contractor.
It can be stressful if you don’t understand home systems and appliances or aren’t good at telling if it’s something you can fix yourself or that needs professional attention. Knowing that you have someone you can call and have a professional on your doorstep shortly can make it much less stressful to keep your household running.
4. Eliminates the Stress of Finding a Contractor
Finding a contractor can be stressful. First, you must search online or talk to friends/family about who they use, and then you must trust what they say. There’s no guarantee you’ll like the contractor as much as people say in the review or that you’ll get the same person.
Dealing with broken appliances or home systems can be stressful enough. Knowing you only have to make one phone call to get the situation fixed can bring peace of mind. In addition, you’ll know someone reputable is coming to your home to help you quickly.
5. Provides More Coverage than Manufacturer’s Warranties
A home warranty usually covers more than a manufacturer’s warranty. First, manufacturer’s warranties only last a year or two and never cover normal wear and tear.
On the other hand, a home warranty covers normal wear and tear and lasts longer than a manufacturer’s warranty. So while you’ll have to pay a deductible or service fee, it’s better than paying the entire amount of the service yourself.
The Downsides of a Home Warranty
Of course, there are downsides to a home warranty that you should understand, including the following.
1. Dollar Limits
Like insurance policies, home warranties have dollar limits on coverage. You must make up the difference if you reach the limit per item or overall. For example, if you need a new dryer, but your home warranty has a limit of $1,000, and the new unit costs $1,500, you’d be responsible for the extra $500 in addition to what you paid for the warranty already.
2. There’s no guarantee your Claim will be Approved
There’s never a guarantee that a warranty company will approve your claim. However, if there are any ‘gray areas’ they can use, they will.
For example, if a warranty company can prove you never serviced or maintained your HVAC system and it breaks down, they can deny your claim because of improper maintenance.
There are other ‘gray areas’ warranty companies can use to not pay your claims. While reputable home warranty companies won’t do that, there’s always the risk that the warranty company won’t approve your claim.
3. You Can’t Choose the Contractor
Even though choosing a contractor can be stressful, some people prefer it. Unfortunately, with a home warranty company, you’re stuck with whoever they send you. It might not be from the company you’d hoped for, or you might not click with the contractor, but you must use them if you want to file the claim through your home warranty.
4. Replacements may not be Your Choice
If the warranty company determines you need a replacement rather than a repair, you might not get an identical replacement. However, if your model is no longer sold or they find a comparable option at a lower price, they can substitute it.
5. When You Shouldn’t Get a Home Warranty
Home warranties can be great, but there are certain times when you don’t need one, including the following:
- You built a new home – Most new homes have a warranty and/or builder guarantee. However, buying a home warranty may be like doubling up, and the home warranty wouldn’t be effective if the builder covers the issues.
- You paid with a credit card – If you bought new appliances or home systems with a credit card, they might already have extended coverage through your credit card. Determine your credit card benefits to see if that’s the case.
- You maintain your appliances and home systems often – If you’re diligent about home maintenance and services, you may not need a home warranty. While proper maintenance is required to have your warranty in effect, a warranty may not be necessary if you’re meticulous about your maintenance.
How to Buy a Home Warranty
If you decide a home warranty is right, here are the steps to purchase one.
Get quotes from several home warranty companies, such as Select Home Warranty, Choice Home Warranty, or Elite Home Warranty. Consider all options, especially each company’s different tiers, based on the desired coverage.
After narrowing your options by company, compare each side-by-side, looking at total coverage, cost, deductibles, and exclusions. Then, decide which option will suit your needs the most based on the coverage you need.
Research online, read reviews, and check out sites like the Better Business Bureau to ensure a company is legit.
Work out the cost
Work with the warranty company on the cost, including the deductible, co-pay, and premiums.
Pay the premium
Most home warranty companies require you to pay the premium in full annually. So be prepared to pay the premium and get the policy to cover your home.
Is it a good idea to extend a home warranty?
Extending a home warranty makes sense if you bought an older home or have older appliances. The only time it’s suggested not to extend it is if you have a solid financial cushion, making it easy to afford even the most major repairs without the warranty.
Why do real estate agents push home warranties?
Real estate agents often push home warranties because it makes the house more attractive. However, a buyer on the fence about purchasing a home may change their mind if they know there is a home warranty because there’s less worry if something goes wrong with the home.
Is a home warranty a write-off?
Typically a home warranty is not a tax deduction. However, if you run a home office and itemize your deductions, you might deduct a portion of the warranty cost as it applies to the size of your home office.
If you think a home warranty is right for you, shop around. Get the best rates on a warranty with terms you can afford. Be sure the warranty covers what you need, either appliances or home systems and pay close attention to the benefits of a home warranty to ensure it’s right for you.