Are Home Warranties Worth the Money?
By Marilyn Lewis
If you've bought a home recently, you may have purchased or received a home warranty.
However, consumers frequently expect more from these plans than they deliver.
Home warranties aren't insurance policies. They're service contracts. Like a service contract that covers repairs to your computer, a home warranty is a company's agreement to pay for fixing -- and, if necessary, replacing -- specified home components.
A home insurance policy, in comparison, covers losses if your home and its contents are damaged or lost to theft, fire or other causes.
A basic home warranty costs about $350 to $500 a year or more. It typically covers kitchen appliances, plumbing, water heater, furnace, sump pump, whirlpool tub, and ceiling and exhaust fans, Angie's List says.
"Enhanced" plans, purchased for another $100 to $300, provide added coverage for such things as a washer and dryer, air conditioning, refrigerator and garage door opener. Optional items can be added, including pools and septic systems.
You May Be Covered Already
If someone gives you a home warranty, accept it -- at least while it's free. But understand that, even with someone else paying the premiums, you'll likely pay a service fee (typically $50 or $75) each time you need a repair, according to Angie's List.
Before buying a home warranty, learn what coverage you may already have. For example, if you're buying a newly built home:
The home appliances and systems typically have one-year warranties.
Most states require builders to warranty the home's structural elements for up to 10 years.
Also, when you buy new furnishings and appliances, use a credit card that extends the product's warranty. That can add as much as an extra year of protection.
Is a Home Warranty Right for You?
Sellers may offer a year's coverage as an incentive to home shoppers. Owners of new homes frequently pay the premiums after their free year expires.
Real estate agents sometimes give home warranties to clients as a thank you gift for purchasing a home. Some buyers of older homes find that a warranty gives them confidence.
Other homeowners decide they're better off setting aside savings to cover home repairs and replacements.
One way to think about your needs: Compare the age of each covered item with its average life span. To do so, use this chart from the National Association of Certified Home Inspectors.
With expensive components near or past their life expectancy, a home warranty might be a good idea. Components that have pre-existing problems, however, typically are excluded from protection.
Buyers who purchase a previously owned home inherit used appliances and home systems with wear and tear. A home warranty can help cover the cost if things break down.
New Jersey real estate agent Lorraine Labonne-Storch told HSH.com that a few days after closing on a home she purchased, the boiler caught fire. It cost her $12,000 to replace.
A home warranty would have covered a portion of the cost, she said. She'd had the option to purchase a warranty when she bought the house, but declined it.
Home warranties top the list of complaints received by Angie's List. One reason, Angie's List says, is the difference between customers' expectations and what the plans actually deliver. Homeowners also complain about the quality of service from warranty companies.
Before buying a home warranty, read the contract and understand exactly what it does and doesn't cover. For example, some contracts won't provide coverage if:
- You didn't maintain the appliance.
- The appliance was installed incorrectly.
- The appliance had too much wear and tear.
- Your policy will replace a faulty component. The warranty company may insist on repairing it instead.
- You can call your favorite service provider. Home warranties usually require you to use a contracted servicer.
- The warranty will cover the entire cost. Although she would have been happy to have it, Labonne-Storch said the home warranty she declined would have paid only up to $1,600 to repair or replace the $12,000 boiler.
Learn who will perform the repair work. Also, find out if you can cancel the policy. Most contracts allow a 30-day "free look" that allows a buyer to cancel within 30 days and get a full refund, says the Service Contract Industry Council.
Vet the Company
Research a company using these sources:
- Better Business Bureau. Type in your city's name. On the next page type the company's name. Or type "home warranty." You'll see if a company is BBB accredited. That means a company agrees to resolve complaints with the BBB and pays an accreditation fee of anywhere from $400 to several thousand dollars. See company ratings, if any, and a summary of complaints to the BBB.
- Your state attorney general's office. Find yours from the National Association of Attorneys General.
- Your state insurance commissioner. Locate yours with this National Association of Insurance Commissioners map. Although home warranties aren't insurance policies, 32 states require companies offering warranties to register or be licensed by the state's department of insurance.