As you enter homeownership or if you are already a homeowner, you know one of the worst parts of having a home is when something breaks. Suddenly, the air conditioner isn’t pumping cold air. The washer won’t turn on. Maybe you hop in the shower to get ready for work only to find that the only water coming out is cold.
These surprise breakdowns are not only inconvenient, but they can also be expensive. That can be a quick way to derail a tight budget than when you need to call in the repair people or replace a water heater. Have you considered getting a home warranty to protect yourself from these unexpected and expensive repairs? Are you wondering if they are really worth it? Do they cover what you need them to cover? Do they cost as much as the actual repair might cost in the end?
If you’re wondering if purchasing a home warranty is worth the cost, then read on. Learn all you need to know about home warranty plans, home warranty coverage, and what they cost.
What Is a Home Warranty?
A home warranty is a type of insurance you can get that covers things in your home not typically covered by homeowner’s insurance. When a person builds a new home, many construction companies will offer a home warranty on the parts of a home for a period of time, often up to the first 10 years of the home’s life. This covers unexpected malfunctions in the new components of a home.
Likewise, if you are already a homeowner, there are home warranty companies that will sell warranty coverage for the things in your home like a furnace, water heater, or home appliances, that might not be covered by traditional homeowner’s coverage if something goes wrong. Often you can get a home warranty as part of the purchase of a preexisting home from either the real estate agent or the home sellers.
Why Should You Consider a Home Warranty?
In a new construction home, you might be wondering why get a home warranty? Everything will be new, right? Have heard the story from your friends whose one-year-old refrigerator died without warning, or warranty? In a new construction home, where you are thinking about things like landscaping and buying new furniture, the last thing you need is a big unexpected repair bill from something that should not have broken. Contractors make mistakes and the home warranty protects you from those issues.
When you buy a preexisting home from someone else, you are buying it blindly, so to speak. Sure, you can hire a home inspector to scour through the home. They can provide you with insight based on what they can see. Often they offer valuable insight into a home. Yet, they can’t predict when a furnace or microwave will die. They can’t see inside the plumbing to know when something unexpected will go wrong. They are knowledgeable and use their expertise but they are not fortune tellers on home malfunctions.
When you buy someone else’s used home, you don’t know the history. The home warranty acts as protection for unexpected breakdowns of things inside the home.
How Does the Home Warranty Work?
So, how does the home warranty coverage work? It works in much the same way it works for other insurance types of claims. If something that is covered (more on this later) breaks or malfunctions in your home, you call the warranty company. You file a claim with them as you would for insurance on your car or home.
Once you have filed a claim, you call the repair person. Some warranty companies have people they recommend. Others let you select the repair person. The repair person comes to evaluate the breakdown. They write a quote for repair. You pay a service fee, think of this as a smaller kind of deductible. Then you turn in the bill and the warranty company covers the rest after your service fee. More on service fees in the cost section.
Factors Impacting Cost of a Home Warranty
Like any kind of insurance coverage, not all home warranty plans are the same. Before discussing the actual cost of a plan, let’s consider the cost of a home warranty plan. First, like any policy, the extent of the coverage in the plan will impact the cost. The type of plan will also impact the cost. This can mean what types of things are covered and how much coverage they get.
There are always options to add additional coverage in-home warranty plans if you want certain things covered that might not automatically be a part of the plan. Add on coverage adds to the cost of the plan. The size of your home and where you live also impacts the cost of the plan.
Cost of a Home Warranty
Home warranty cost varies from plan to plan based on the above criteria. The average plan runs between $350 and $600 annually. If you opt to add on extra coverage, your plan rate can increase between $100 to $500 per year.
Remember, what you have covered will impact the cost of the home warranty. Many plans allow you to pay for the plan monthly but will sometimes add a small fee for that option. Other plans will offer a small discounted rate if you pay for the plan all upfront each year.
Some plans will allow you to pay for the warranty upfront and then it will include any deductible, so you won’t owe one if you need to make a claim.
The breakdown of costs generally looks like this:
- Total plan cost: $350–$600 per year
- Average monthly payment: $30–$50
- Service call fees: $50–$100 per visit
Like any insurance policy, you want to read the fine print carefully so you know exactly what you will get covered under these fees.
Is a Home Warranty Plan Worth the Cost?
A home warranty offers some peace of mind for many homeowners. If you are buying a home from someone else and don’t know its history, it can provide a sense of protection against things you can’t anticipate because you don’t know the house.
For many, they don’t have the needed cash to cover a large and unplanned expense. If you know you have a tight budget and the thought of something breaking that will lead to a large repair bill breaks the bank, then a home warranty is smart.
When a water heater, furnace, or refrigerator breaks, it can be expensive. If you don’t keep a good cash reserve to be prepared for that kind of expense, the home warranty makes sense and offers the protection you need.
It is important to know exactly what is covered in the home warranty plan. Read the fine print to make sure you are getting what you expect. If your home inspector mentioned concerns about the age of your appliances and appliances are not automatically covered in the home warranty, the cost won’t serve its intended purpose.
Yet, if you know you have an aging furnace, the protection of a home warranty has you prepared for a potential breakdown in the middle of the winter.
Should You Buy a Home Warranty?
If you are considering whether a home warranty is worth it for you, here’s how to calculate.
Consider the age of your home’s systems (like HVAC, for example) and appliances. Look at not only how old they are but also their condition. Also, factor in if they still have any warranty left on them. If they are more than a few years old, they likely don’t have any warranty coverage left.
Look carefully at what holds the potential for a breakdown and the potential cost for a repair or replacement of that item. Then compare the costs associated with potential repairs from those items with the cost of the home warranty. What if several of those items needed repairs or replacing all in the same year?
If you can’t afford those potential repairs, then the home warranty cost is worth it. It probably becomes even more worth it as systems and appliances in your home age.
Benefits of a Home Warranty
What are the benefits of a home warranty? It offers a great deal of peace of mind for potential expensive costs. If you know you have a tight budget, then the warranty can add the reassurance you won’t be in a lurch if something breaks.
It can also be a selling point for both a home buyer and a home seller. It tells the seller you are confident about the features of the home. It also offers the home buyers some reassurance that they can’t anticipate things because they don’t know the house.
If you buy a home only to discover problems you couldn’t see, the warranty acts as protection.
Home Warranty Vs. Homeowners Insurance
Since you are getting a policy covering your home, it might seem like homeowners’ insurance might cover many of the same things that a home warranty would cover. In fact, they are quite different.
Homeowners insurance covers things like:
- Weather damage
- Falling trees
- Natural disasters
If you have a mortgage on your home, you are required by the mortgage company to carry insurance covering the house. It assures all parties that the structural parts of the home are covered.
Home warranties covering the components of the things inside the home. It is also optional coverage, unlike homeowners’ insurance.
What Is Covered?
The most important thing to know is that not all plans are the same. So, as you consider purchasing a home warranty, read the fine print carefully to make sure you get the coverage you need. You don’t want to purchase a home warranty, assuming it covers something only to find out it isn’t covered when you need it.
The most common areas covered include:
- Built-In Microwaves
- Ovens & Ranges
- Ceiling Fans
- Exhaust Fans
- Garbage Disposals
- Sump Pumps
- Water Heaters
- Whirlpool Tubs
- Electrical Systems
- Heating Systems
- Plumbing Systems
A home warranty for a new construction home is required by the Federal Trade Commission to coverall workmanship and materials used. There are exceptions for the small cracks that happen as a new house settles.
What’s Not Covered?
Again, the plans vary from company to company. Some things are not automatically covered with home warranty coverage. Often you can get additional coverage to get these items covered:
- Air Conditioner
- Central Vacuum System
- Garage Door Opener
- Hot Tub
- Well Pump
- Septic System
Getting any of these items covered adds to the cost of the home warranty. For example, you have to decide if it’s worth adding coverage for an older dryer. What are the potential costs of fixing the dryer compared to purchasing a new one?
For things like a septic system or air conditioning unit where repairs might be more costly, the add on cost to the warranty might well be worth it.
The Ins and Outs of Home Warranty Coverage
There are some real benefits to purchasing a home warranty for your home. It offers you some coverage for things inside your house that can have costly repairs if you aren’t prepared for them.
You have to evaluate based on the systems and features of your home if the cost is worth it. If you have recently replaced a furnace or appliances, maybe the cost isn’t worth it. Yet, if you have a home with many older components where you could have an avalanche of repair costs at one time, the home warranty might provide great protection from those costs.
For more information related to protecting your home, be sure to visit our page often.