Have you been told that you should buy a home warranty to avoid the huge cost of replacing a broken appliance? Have you been told not to buy a home warranty because these insurance companies are frauds and refuse to honor agreements? Few things about the nuts-and-bolts of owning a home solicit such polar responses. And justifiably so. The pros and cons of purchasing a home warranty as stark as they are significant. Here are the dilemmas that surround the myths, musts, and messes of home warranties and explain why it’s difficult for even informed homeowners to decide whether buying a warranty is, well, warranted.
Appliances Big and Small
The most common reason for someone to buy a home warranty plan is to avoid the huge cost of replacing a major home appliance. A new heating or cooling system can run upwards of $10,000. With a good home warranty plan, your out-of-pocket expenses, including annual premiums and deductibles, might be as little as three or four hundred dollars. On the other hand, many plans don’t cover refrigerators or washers and dryers, which cost a pretty penny and have appliance life expectancies of less than 15 years. Plus, for smaller items like doorbells, ceiling fans, and garbage disposals, the deductible may be nearly as much as the cost of repair itself.
The Details, the Fine Print, the Choices, the Insanity
Should you choose a plan with a $250 annual premium and a $100 trade service fee if something breaks down? Or, the $450 plan that has only a $50 fee? But, wait, neither of these plans cover your refrigerator or washer and dryer. Oh, here’s the Gold Plan or the Platinum Plan or Premium Plus Plan, it covers all of your major appliances. But it’s $1,000 a year. You could almost buy a new refrigerator for that. And look at these exemptions. What does unusual wear-and-tear even mean? You live in Minneapolis: Does that mean your air conditioning is supposed to last for 25 years? You don’t even need insurance for your dishwasher because it’s still under the manufacturer’s warranty. But nobody offers you a discount. Maybe a home warranty isn’t the right answer for you….but most of your appliances are 10 or even 15 years old, no you need some kind of protection….and you thought choosing health insurance was hard.
Mo’ Insurance, Mo’ Headaches
A corollary to all this fine print is the diligence needed to stay on top of it. Many homeowners purchase a home warranty plan, so they don’t have to worry about the wear-and-tear on their appliances or spend hours meticulously maintaining them. Yet, since most plans include clauses that exempt coverage in case of homeowner neglect or abuse, chances are you’ll be spending just as much time making sure your home maintenance ducks are in a row. Otherwise, you may be paying for an essentially worthless policy, in addition to the cost of a new appliance.
The Paradox of Saving Money
Other than trying to get out of paying a claim, the most common complaint from homeowners about their home warranty coverage is that old appliances get repaired, not replaced. Nearly without exception, a home warranty company will attempt to repair your appliance, before they agree to replace it. You may tell them the appliance is old and horrible in terms of energy-efficiency, but if you’re looking to reduce your utility bills and home energy consumption in the near future, you should look for custom plans that include replacement upgrades for your old appliances.
The Easy Answers
Home warranties can be a great idea, at the very least, for your first year of owning a new home, when you may still be feeling out the exact condition of your house. If you’re buying a foreclosed property, it’s as close as you can get to a no-brainer. In fact, in California, one of the states hit hardest by foreclosures and falling property values, 90 percent of existing home sales include home warranty coverage.
Better yet, in this buyer’s market, you can often ask that a home warranty be included in the terms of sale. Alternately, some real estate agents offer these warranties as gifts once the sale is closed. That said, don’t be confused by any unwritten guarantees. Some people mistakenly believe the seller is responsible for home repairs up to a year after the close of escrow. Unless the seller willfully withheld information about needed repairs, the property is yours once escrow is closed.