Buying a Home Warranty: Pros and Cons

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Coming up with that downpayment for your new home was challenging. But, although you’re a bit cash poor, you have your beautiful new home. But now, can you afford to replace an appliance or the heating, ventilation, or air conditioning (HVAC) if they malfunction?

That’s where home appliance warranties come in. They claim to give you peace of mind and ultimately save you money if anything goes wrong. But do they really cover all they claim? Is the premium worth it?

Home Appliance Warranty vs. Homeowner’s Insurance

A home warranty provides coverage for appliance breakdown costs. It usually covers an HVAC, washer, dryer, kitchen appliances, etc. An accident doesn’t need to happen to the machinery; it simply needs to break for a home warranty to cover it.

Homeowner’s insurance covers your home against sudden and accidental damage. The damage must result from perils such as wind, fire, theft, vandalism, etc.

For example, if your stove stops working, a homeowner’s policy won’t cover it, but a home warranty will cover it. Conversely, if a hurricane destroys your stove, a homeowner’s policy will cover it, and a home warranty won’t.

You can purchase a home warranty whether you have a new house or have been residing there for a while.

Sometimes when selling a home the seller will pay for a home buyer warranty for the buyer.

Home Warranty Coverages

Home warranties pay for the repair or replacement of major appliances. They also cover HVAC and, in some cases, the roof.

You can often customize coverages. For example, you may want the pump covered if you have a pool.

But beware, the more coverages you have, the more you'll pay monthly or annually.

How Home Warranty Works

If, for example, the burner on your stove isn’t working, you would call the home warranty company and report it. The company would then send a contractor.

If the repair is part of your coverage, the company pays some or all the costs to repair it. But if the issue doesn’t come under your plan, you'll have to pay to fix it.

Regardless of whether it’s covered or not, you’ll be charged a service fee for the technician.

Costs for Home Appliance Warranty

Several factors go into pricing for a home warranty. The plan you choose dictates the price, but location and the plan’s service fees also influence the price.

Generally, you can expect to pay between $25 to $50 per month for a basic plan. A service fee per breakdown is usually between $60 to $100. You also must factor in any deductibles the plan requires.

Home Appliance Warranty Pros

A home warranty is supposed to protect you against unexpected and expensive repairs. If you’re short on cash, or don’t have a rainy-day savings, this could beneficial. It provides peace of mind.

They’re also great for those who aren’t handy with a tool and rely on others to fix their appliances. You don’t have to call around to find someone to fix the problem. Instead, you just make one call and a technician shows up.

Often home warranties are made available when you purchase a home. They can help defray future expenses when you’re financially tight from buying a home.

They’re also a good option for a current home.

Home Appliance Warranty Cons

There have been contract issues with some warranty companies.

Many companies have claim caps. So, you may receive only $3,000 for that $10,000 air-conditioning unit and furnace when they break down. And there are deductibles, so you may take a double hit.

If you can’t prove the broken machinery has been maintained in accordance with the manufacturer’s guidelines, your claim may be rejected. Maintenance can be subjective and your definition may be different than the company’s.

Often a home warranty won’t replace items; they only repair them. This is the case despite numerous breakdowns. And when they do replace machinery, they will only provide a specific brand of their choice; you don’t have a say in the matter.

Choosing a Home Warranty

With home warranty plans, the premiums are based on the plan or customizations you purchase. Note what a plan covers. For example, sprinkler systems are not covered should they break. Make sure you understand the coverages. There are several companies available. In no particular order, they include:

• American Home Shield
• First American Home Warranty
• Choice Home Warranty
• Select Home Warranty

Read the fine print for all these companies. Look for exclusions and fees. Check to see if they have coverage caps. If so, how much will they pay for an item?

Researching a home warranty can save you money. If you don’t research or read the contract, you could pay a lot for very little coverage.

Alternatives to Home Warranties

Newer appliances may already have warranties, so you don’t need double coverage. Check your appliance’s paperwork. Also, if you buy your new stove with a credit card, check the coverages your credit card may provide if it stops working.

Always check the lifespan of appliances; this will allow you to budget for upcoming expenses. This dovetails with starting an emergency fund.

Service major items, like HVAC, regularly. It will help you avoid large problems.

When buying a home, a good inspector may point out potential problems with big-ticket items like a furnace. That will allow you to plan, talk to the seller or walk away.

Know Home Warranties Coverages

The best way to know whether you need a home warranty is to check your finances. Can you afford a large expense? Then when researching home warranty companies read the contract.

There are a lot of plans available with several companies. Double-check the fine print. Add up the fees and decide if a home warranty is worth the premium.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.