December 31, 2020

What to Know About Buying a Home Warranty

Peri Elgrot

Home Warranty Editor

Before buying a home warranty plan, ask yourself these 5 questions:

Normally, buying a home is an expensive proposition. The median price of a house in the United States is now $226,800, 6.1% higher than last year, according to Zillow, the online real estate marketplace.
As you figure out how to protect your investment, don’t be tempted by TV and online ads that are pitching home warranties. They typically promise to protect against things that aren’t covered by traditional homeowners insurance policies.
These types of warranties are actually service contracts. Meaning, they guarantee to pay the cost of repair or replacement if covered items stop working.

Limitations of Home Warranties

Having a home warranty might provide you with some peace of mind. However, you should realize that providers of these plans always build in wiggle room that can make things easier for them to deny payouts. As a result, a lot of consumers complain to the Better Business Bureau about home warranties since they didn’t get the benefits they expected.

One possible alternative to buying one of these plans is to simply self-insure. For a long time, consumer reports have recommended that people put the money they would spend on a home warranty or a service contract into a savings account specifically for product repair or replacement. Or, you can simply stash extra money in your emergency fund. Whichever way you choose, you won’t risk paying for a plan that might not even provide the coverage you expected in the first place.

If you’re thinking of buying a home warranty, your first step should be evaluating whether it covers what you want it to. Keep in mind, there are plenty of limitations. These plans normally don’t cover nonmechanical items like windows or structures of the house, for example.

Also, remember that if you’re buying a new house, the items inside are probably still covered by the manufacturer’s warranty and the builder’s warranty. You might want to consider a home warranty if the house and therefore, the appliances, are older.

5 Questions to Ask About Coverage

Before purchasing a home warranty, consider how comfortable you are with the answers to these questions.

1. Do I already have protection?

As we’ve said earlier, new home appliances can already be covered. Even if your appliances aren’t so new, they might still be under warranty if you bought them with a credit card. The reason for this is since some credit cards extend warranty length.

2. How much will this coverage cost?

The answer to this question depends on the kind of plan you buy and which provider you choose. Generally, you can purchase one of three kinds of home warranty: a plan for a specific appliance, a plan for all appliances, or a plan for your plumbing and electrical systems.
Prices can also vary depending on where you live. For example, a home that covers most major appliances costs about $480 annually for a house in central Ohio. One that also includes the home’s electric and plumbing systems can cost close to $600.
In comparison, a homeowner in Westchester, N.Y., might pay $900 to cover major appliances and $1,020 to include electric and plumbing.
Aside from the cost of the plan, there are most likely going to be additional expenses. If you have some kind of problem a specific appliance or system, even one that’s covered, you’ll have to make a copayment which can range between $60 to $125 depending on the work that has to be done.

3. Am I clear about what the warranty covers?

It is said that most of the complaints the BBB receives about home warranties stem from the fact that customers don’t fully understand the coverage their plans provide.
Be sure to read the terms and conditions very carefully. When examining home warranty plans, it has been found that some policies will cover your fridge but not the icemaker that comes with it. Other policies can cover your hot-water heater but not the water tank itself.
At times, if your appliance breaks under specific circumstances, it won’t be covered. For example, an oven might not be covered if it stops working while it’s in self-clean mode or if it got damaged by a power surge.
It could also matter how you care for your appliances. If you haven’t maintained it properly or if it wasn’t applied correctly, the home warranty provider might argue it can refuse to pay for repairs. Even if there was a pre-existing condition that wasn’t evident to you when you bought the home warranty, the provider can deny coverage of said item.

4. Will this plan fix or replace a broken item?

For the most part, home warranties explain that if a repair is too expensive, the provider might offer to replace the broken item instead. In a situation like this, the home warranty company might give you the depreciated value of the item and require you to pay the difference on your own in order to get the same model you had before.

5. Are there limits to the amount the plan will pay out?

The short answer is, yes, there are. But, they depend on what kind of plan you purchase from your provider. Over the term of 12 months, a plan can choose how much they pay, say up to $2,000 to access, diagnose, repair, or replace each item that’s covered.