When you purchase a home, even if the home isn’t brand new, it’s very likely that you’ll be offered a home warranty. In many cases, the seller will offer to pay for the first year of such a warranty. However, in some cases if you choose to purchase one, you will be paying for it yourself.
But, what is a home warranty, and do you really need one?
What Is a Home Warranty?
Put simply, a home warranty is a contract between yourself and a home warranty company that allows you to get discounted repair and replacement services on the major components of your home (plumbing, electrical systems, air conditioning, heating systems) and major appliances like refrigerators, washers, dryers, dishwashers, and swimming pools. In exchange for this warranty coverage, you pay an annual fee, either as a lump sum, or in installments.
If you have a covered system or appliance break down, your home warranty company will arrange for an affiliated contractor to come and look at the problem, and, if approved, do the work. Usually you will pay a flat fee for these service calls, unless extensive work is required. A broken pool pump, for example, would be covered by just the service fee if your pool equipment is part of your warranty coverage, but if a water heater fails, and replacement requires bringing connections and wiring up to code, you’ll pay the difference.
While it’s true that there are some years when nothing will break and you won’t use your home warranty, it’s also true that a major system failure that is repaired under warranty will make you feel that it has “paid for itself.”
Home Warranty Coverage Limitations
However, home warranties are not the perfect solution to every system or appliance breakdown. There are limitations in coverage (garage door openers and pool vacuums, for example, are rarely covered or included) maximum dollar amounts of repairs per year, and a nearly universal clause that you, the homeowner, are responsible for keeping systems and appliances in good working order.
Homeowners Insurance versus Home Warranty Coverage
It’s also important to remember that a home warranty is not a substitute for homeowners insurance.
Homeowners insurance covers the replacement cost of your entire home and the contents therein. A home warranty provides limited coverage for specific systems and items. Insurance covers you in the event of natural disasters. If your refrigerator is killed by a lightning strike, insurance may cover it, but a home warranty will not.
Additionally, home warranties require that you use the warranty company’s contractors. In many cases, these contractors are respectable and reliable. The problem is that many give the lowest priority to warranty calls. This means that as a homeowner, you lose the freedom of choosing your own repair service and forging a relationship with the company or individual.
Who Should Purchase a Home Warranty?
Are home warranties worth it? If you are bad at saving money for emergencies, but good at basic upkeep of appliances and systems, they probably are worth it. A little handy work can help keep appliances and other items around the house typically covered by warranties last longer. If you think that you can save money to go towards a replacement appliance or major component like your HVAC, then there are probably better options.
Basic warranties are relatively inexpensive to roll into a home purchase. If you’re unsure about something like the furnace in the home you’re purchasing, it’s generally much easier for the seller to include a couple years home warranty protection than to replace the system for you.
If you have a decent amount of saved cash, you may want to skip the warranty and boost the contents coverage of your homeowners insurance instead. This is a great alternative to purchasing a home warranty.
When buying a new build, many home builders will include a home warranty to cover the structure of the home, some appliances, major systems. This can be a great option for future homeowners because in many cases, the manufacturers warranty will extend the coverage of major systems even further.