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Do You Need a Home Warranty?

by Ryan Guina

When you purchase a house, you are making the decision to invest a lot of money as well as time into one property that will serve as your home. Your home is often considered your greatest asset and as such should be protected. Home owners insurance covers certain things, but not everything that can go wrong within the home. This is where a home warranty comes into play. Whether you are a first time home buyer or already living in your dream house, a home warranty can provide you with an added layer of security that might save you money in the long run.

What is a home warranty?

A home warranty plan may also be referred to as a home protection plan or a home owners warranty plan. In essence the home owner enters a contract with the home warranty provider, where for a specific price certain home appliances and systems are covered if they break or are in need of maintenance. A home warranty plan may be purchased when a house is bought/sold or by a home owner who is currently residing in their home. In the case of a home sale, the home warranty plan may be purchased by the buyer, the seller or in some cases even the real estate agency as part of the sale.

The home warranty plan covers the maintenance, repair and replacement of appliances as well as heating, cooling, plumbing and electrical systems. These are things that are generally not covered by home owners insurance, thus the cost of maintaining, repairing or replacing would fall squarely on the shoulders of the home owner.

What does a home warranty cover?

Get a Free Quote from the Home Warranty Leader!Home warranty plans are as varied as the companies that provide them. As a general rule, they all work relatively the same, however it is important to note that each company and contract are different. For this reason it is important to carefully review each potential company as well as the agreements they offer to find the contract that best suits your needs. With certain exceptions, most home warranty plans operate in the following manner:

  • The homeowner contacts the home warranty company when an appliance or home system stops working properly.
  • The home warranty company will then contact a service technician with whom they have a contract, who will in turn contact the home owner to set up an appointment.
  • The service technician repairs or replaces (based on contract) the malfunctioning appliance or home system.

The homeowner pays the one time service fee (usually less than $100)

The following items are generally covered by a home warranty plan; dishwasher, garbage disposal, range, oven, air conditioning, furnace, water heater, duct work, indoor plumbing stoppages, electric system, ceiling fans and telephone wiring.

Is the value worth the cost?

Unlike other insurance policies where you hope to never be in a position to need the coverage, a home warranty plan is something that may be of value if you purchased the right policy. With standard policies ranging from $200-$600 per year, the cost is fairly affordable and can certainly save you considerable money in the event a major repair or replacement is covered. The most common reported problems with this type of protection is that policies vary from one company to the next, many with loopholes, restrictions and exclusions that end up making the contract worth little more than the paper it is printed on.

To ensure this doesn’t happen, take the time to research and review many home warranty companies as well as the agreements they offer. Just like getting multiple insurance rate quotes before buying insurance, it’s also a good idea to get home warranty quotes to compare prices. Read the fine print and ask for recommendations from trusted friends, family member and co-workers. This will help in weeding out the companies that provide little to no real protection should you need maintenance, repair or replacement of appliances and home systems.

Do you have a home warranty? Do you recommend one?


Published or updated February 21, 2011.
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{ 17 comments… read them below or add one }

1 basicmoneytips

I do not carry a home warrenty. I have had one at one time and never had the opportunity to use it. However, I do see some benefit if you are moving into a new house. Of course you should always get a home inspection, but there can always be something missed. In this situation a home warrenty can give you a little piece of mind. Also, you can also ask the sellers to provide this as part of the deal, most will not have a problem with this.

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2 Ryan

I don’t have it either, Robert. But all it takes is an air conditioner unit or furnace to go out to make it worthwhile. Overall, I think it might be a good option for those who don’t have the means to cover something that costs several thousand dollars.

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3 Doug Warshauer

I’ve never had one, so I can’t speak from experience, but like most optional warranties, it probably makes more sense to self-insure. To offset the cost of marketing and overhead and to produce an acceptable profit, these plans have to be huge moneymakers for the providers. Odds are you are going to spend at least double on your premium what you’ll receive in reduced repair/replacement costs.

Of course, insurance is supposed to protect against catastrophic events, so perhaps that is an argument for buying it here. From your list of what’s covered, though, I don’t see anything that is likely to be so overwhelmingly expensive that it would cause significant financial hardship if it needed replacing. (If that’s not the case, the homeowner may have overstretched on their home purchase.) All things considered, I’d be inclined to pass.

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4 Ryan

Doug, I think self-insuring is probably the best option for most people, but there are times when it could be worth purchasing one of these plans.

For example, I was talking with a friend last night and he mentioned they had a problem with their air conditioner last summer and were quoted $6,000 to replace it (they fixed it instead for a few hundred bucks). But they were concerned because it is 22 years old and they have no idea how much longer it will last.

I recently had a quote for a home warranty service that came in at $420/year. So using that quote (quotes may vary, so be sure to check multiple companies), their air conditioner would have to last 14 more years before going out for them to have spent more on the warranty program than a new unit – assuming the cost of the new AC unit remains the same for the next 14 years, which isn’t likely.

So in their case, it may be worth purchasing a home warranty.

I think the age of your home, the condition of your appliances, and other factors should play a role in your decision making. Another time it may be worth buying a home warranty is when you buy a home – you can often get the seller to pay for the first year for you.

final note: most home warranty plans come with a 30 day grace period, to prevent people from purchasing a plan and making a claim right away.

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5 Kimberly

I’m a single parent (1 child) who purchased a single family home last year that is updated but, appliances are probably 5-10 years old. I purchased a home warranty through AHS that covers core appliance items and a few extras which, totals $700 annually. I haven’t needed to use it yet and my renewal is due in 2 months so, I am contemplating the options. I see both arguments; I’d like to pay myself the money since I can probably afford a new microwave or dishwasher. However, if my AC, heat pump or bigger ticket item had to be replaced, I’d have to pay with credit. In my case, what makes the most sense? I’m leaning toward the warranty…

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6 Ryan

Kimberly, a home warranty makes sense for someone who doesn’t have the funds to cover a major expense, but $700 a year adds up quickly – especially if you never use it. If your biggest concern is your AC unit going out, then it might not be a bad idea to call an Air Conditioning service technician to your home to do an inspection on your AC unit and furnace to give you an idea of what kind of condition it is in and if it needs any maintenance. That wouldn’t be a guarantee against it breaking down, but might help you sleep better at night.

Then you can take that $700 and save it in a savings account specifically for home repairs, nothing else. After a few years, you should have enough in that home repair savings account to handle almost any home repair that comes along.

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7 Kim @Moneyandrisk

Kimberly,

That home warranty sounds pretty expensive. You might want to check around with other insurers to see if you can get something better. The other thing is to leave out core appliances as an option and save the difference.

Check out the age and remaining quality of your really big ticket items that you are concerned about. Then make that risk determination.

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8 Brian

Here’s the main issue that most people forget. Most, if not all, home warranty contracts state that you must have been properly maintaining the device that breaks and they require documentation when you place a claim. If you purchase a home warranty for that 20 year old air conditioning system that you know might not last and then you place a claim for it when it does break, you will be required to show that you have been properly maintaining the unit each year or your claim will be denied. AND you will not know your claim is denied until after they have sent out the company THEY choose and you already rack up the bill with that company. Home warranties can work for the new home buyer in year 1 as you do not have the responsibility to have maintenanced all of the major items but after year 1 and for those that buy it themselves for a home they’ve lived in for awhile, be prepared to show proper maintenance records or you will be faced with claims being denied when you needed the coverage most.

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9 KELLI

if an air conditioner is 20yrs old how can anyone say lack of maintanance is why it failed?? and i have never had to supply my warranty company with any proof of maintenance.

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10 Susan J

I have a Home Warranty and I have more than been satisfied that I got it . I pay about 25.00 a month and have had the plumbing under the house(all of it ) replaced for 45.00. that was two years ago.Ive had the main line cleaned out several times for 45.00 dollars and the savings to me are so worth it.

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11 Laura

Ryan- We had a home warranty ($700+ w/lots of extras) when we purchased our home. For each of 4 calls ($100 per visit), the warranty specifically excluded THAT particular item. E.g the heat sensor on the dryer; the backflow preventer valve on the pool isn’t included because it’s a part that’s not IN the pool, the leak on the solar water heater, etc, etc.. In each case I had to pay $100 for a visit but that technician couldn’t actually perform the repair and I needed to call someone else. I keep hearing stories from people who got their entire AC unit replaced and I couldn’t even get the dryer to pump heat! How do you evaluate these companies?

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12 Ryan

Laura, the best way to weed out companies is to do an online search for consumer complaints against them. You can often eliminate many options right away. Next, check with Better Business Bureau and your state board. You may also want to see if your state has any regulations or if there is a governing board for home warranty associations in your state.

Once you have a short list of companies, you may want to evaluate the policies side by side. Admittedly, this takes a lot of work and can be a daunting task, but it will be worth it if it saves you several hundred dollars and gives you peace of mind.

There are also several comparison sites out there for home warranty companies, so you can check with those.

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13 Kim @Moneyandrisk

Ryan,

I recommend that home buyers get a home warranty for the first year because no inspections can cover all the possible hidden defects. After that, people just need to be vigilant about maintaining their home.

When I bought my first home, we got a warranty. Two weeks after we moved in, the water pipes burst and flooded the second floor and down to the living room. We had to move out for 3 months while the plumbers replaced all the pipes in the house. They replaced one area, a new one would burst due to the different pressure. (Yes the house was old.)

The warranty paid for the pipe replacement (it was thousands of dollars) but the devil is in the detail. They don’t cover the drywall that they broke through to replace them. Our return on that $250 policy was about $8,000. We had to pay the rest ourselves.

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14 Ryan

Wow! Wonderful example. It’s tough to pay for the drywall and other associated costs, but saving $8,000 is a wonderful deal and certainly made the home warranty worth it!

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15 Meiling

Hi Kim,
Can you give me the warranty company infomation? Thanks!

meiling

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16 Patrick Callaghan

Ok, I’m debating this currently. We were gifted one by our agent when we first bought the home, and even if we paid for it. I’m thinking that having one more year with it would be helpful, we have had both the A/C and Heater checked and maintained and warned they were extremely inefficient and didn’t have many years left in them (maybe 1-2 years). So long as they were well maintained the contractors said that the units would be covered. I’m looking for suggestions though. I know a properly sized HVAC system for the house would cost $6,000-$8,000. HSA warranty renewal is around $800 and I’m shopping around.

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17 Ryan

Patrick, be sure to read the fine print on the contract, but it might well be worth it. The fine print usually states the appliances or other items must be maintained, so be sure to keep your service records. Best of luck!

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