There are times when it becomes apparent that my wife and I are living in an ancient house. Shortly after we bought the house, we came back from a relaxing winter weekend break to a disturbing discovery.
While we were gone, the old thermostat failed to activate the boiler, so the house remained cold even as the temperature outside plummeted. The insulation failed to keep out the frigid air, and the house cooled to the point that the hydronic radiant heating system froze.
It took days, not to mention hours of blow-drying the frozen radiant heating pipes, to get the house back to the correct temperature, despite the fact that we were able to coax the thermostat back to life and promptly set up space heaters to make our bedroom livable.
We called a heating and cooling repair service immediately after discovering that our thermostat and the mechanism that regulates our radiant heat pump were both dead. The price tag was exorbitant, but what were we supposed to do, feverishly fiddle with the thermostat whenever we needed to turn the heat on?
It might have been much worse. A second night in the cold would have very surely caused the freshwater pipes in our home to burst, costing us thousands of dollars in repairs and forcing us to temporarily relocate.
The ordeal was traumatic and expensive enough that we are now considering a home warranty plan as an additional layer of security on top of our standard homeowners’ insurance. Buying a house warranty: yes or no? What follows is the information you’ll require.
What Is a Home Warranty Plan?
On the surface, home warranties seem and function like the manufacturers and extended warranties that cover cheaper goods like cars and electronics.
Home Insurance vs. Home Warranty Plans
If you don’t already have homeowners insurance or flood insurance, a home warranty plan is not a replacement for either of those.
To begin, a mortgage lender will not be appeased by a home warranty. Most homebuyers use a mortgage loan to finance the purchase of their residence, and this means that mortgage lenders typically require homebuyers to carry homeowner’s insurance policies with minimum levels of coverage.
Every standard homeowner’s insurance policy will pay out for losses caused by the same set of specified dangers, including straight-line winds, hail, fire, burglary, other property crimes, and certain types of water damage. In the event that a visitor to your house or one of your employees is injured, liability coverage is a common feature of homeowner’s insurance policies.
Unless the breakdown was caused by a specifically covered risk, homeowners insurance often will not pay for repairs to appliances or other systems in the property. If a tree falls through your kitchen window during a severe rainstorm, for instance, and breaks all of your appliances beyond repair, your homeowner’s insurance may pay to replace them.
Deductibles are a standard feature of homeowner’s insurance, as they are with most other forms of protection. In the event of a claim, policyholders are responsible for paying the deductible before the insurance company steps in.
Once the policyholder has met their deductible, the insurance company will pay the remaining sum, up to the policy maximum. Insurance premiums are proportional to the square root of the deductible so a smaller deductible will result in a larger premium.
Although deductibles are still present in home warranties, they are typically far lower than those in homeowners’ insurance policies.
What Typical Home Warranties Cover
Damage caused by certain “designated perils,” including hail or fire, is not covered by standard home warranties. Instead, they compensate you partially for the cost of fixing or replacing your covered appliance if it breaks down owing to a covered cause.
Home warranties often protect the following:
- Structures of a house, including plumbing and electricity,
- Home heating equipment, including boilers and furnaces,
- Home appliances that are essential to daily life include washers, dryers, stoves, and refrigerators.
- Extras like pools and garage doors that aren’t already covered
Most home warranty providers have a few different plan tiers to choose from. These tiers are often but not always:
- Platinum. This is the highest available package level. All the standard home systems and appliances are included, and the few that aren’t can usually be purchased as optional extras. All of the essential components of a home’s infrastructure, such as its HVAC, electrical, plumbing, laundry, and kitchen appliances, as well as their associated ducting and fans, are insured. Some smaller appliances might not be protected, like microwaves and toasters ovens.
- Gold. Services that are included in the most comprehensive plans may not be included in this one. If you have a clogged drain, but your plan just covers repairs to the faucet, that’s not good.
- Silver/Bronze. As a rule, this tier of plans focuses mostly on large appliances while providing only a little protection for essential home services like plumbing and electricity.
- Basic/Systems. All or most of the plumbing, electricity, HVAC, and other key home systems will be covered by this plan.
In addition to the standard packages, some companies let you create your own plan. Homeowners who want coverage for things like large appliances and maybe one or two other things that aren’t included in cheaper policies (such as plumbing blockages) often opt for these more flexible, and often entirely personalized, options.
A Few Typical Coverage Exclusions
The devil is in the details, and that’s true across all plan tiers. It’s important to read the fine print of the contract to make sure there aren’t any stipulations that could reduce the plan’s worth before you sign anything. Several severe exclusions were present in the contracts I looked at.
These were some of the most notable, and in no particular order:
- Any damages attributable to defects that existed before the policy’s effective date
- Plumbing blockages caused by tree roots
- Plumbing issues more than 100 feet from the access point
- Septic tanks
- Water softeners
- Oven range hoods
- Oven failure that occurs during self-cleaning mode
- Solar water heaters
- Tankless water heaters
- Electrical system damage caused by flood, fire, or corrosion
- Electrical system and appliance damage caused by a power surge
- Attic fans
- Window and wall air conditioners
- Freon issues in any air conditioning system
- Crushed ductwork
- Ceiling fan lights
- Roof replacement
The Cost Of A Home Warranty
Premiums for home warranties might differ depending on the coverage level, the location of the home, the number of extra features purchased, and other elements unique to the home itself, such as its size.
Six local service providers were contacted to submit estimates for my 1,400-square-foot home. Each quote required my street address, so I assume the suppliers used publicly accessible data about my home’s age, number of bathrooms, number of bedrooms, and kind of heating system to get accurate rates even though I didn’t furnish them with any specifics about my property.
The lowest annual cost I was quoted was around $300 for a basic/system plan, and the highest was around $750. Premium discounts were offered by some service providers in exchange for greater service fees, typically on a one-to-one ratio; for example, a $25 increase in the service fee per visit would result in a $25 annual discount in premiums.
Annual or multi-year plans were discounted by as much as 20% off the monthly premium option price. Cancellation costs are included in the contract with some home warranty providers.
Not disastrous, but still enough to make plan holders think twice, these fines may cost anywhere from $50 to $100, or two months’ worth of premiums. Waiting periods of 30 to 60 days from the policy’s effective date are standard for most home warranty plans.
Choice Add-Ons for Policies
Common add-ons to insurance policies are:
- Pool and In-Ground Spa: $10 to $15 extra per month
- Guest Unit: $10 to $20 per month
- Septic Pump: $2 to $5 per month
- Well Water Pump: $10 to $20 per month
- Chest Freezer: $3 to $5 per month
- Central Vacuum: $3 to $5 per month
- Laundry Machines: $2 to $4 per month
- Lawn Sprinkler System: $5 to $10 per month
Plans that don’t cover as much equipment, like washing machines, typically include the option to add coverage for that item at a higher cost. If you know you’re going to require those additional protections, it can make sense to spring for the more expensive package.
Costs of a Home Warranty Compared To Out-Of-Pocket Repair and Replacement Costs
Home warranties are usually a good investment for houses that are several years old and have appliances and systems that are getting on in years as well. They may be overpriced in newer properties with more up-to-date or well-maintained equipment and systems.
Consider your home warranty plans:
- Monthly or annual premium
- Built-in service charge, if any
- Deductible, if any
- The coverage limit for each covered service
- Exclusions that may result in denied claims
A high coverage plan with a low deductible might pay for itself after replacing only one large appliance.
Take a look at a scheme with the following elements:
- A $500 annual premium
- A $75 service charge
- A $100 deductible
- A $2,000 coverage limit for water heater repairs
The premiums for this plan total $500 per year, including an out-of-pocket expense of $175 to replace a broken water heater. During the term of the contract, you would pay a total of $675 for the replacement of the water heater, assuming no additional repairs are needed that year.
Your net profit will be greater than $675 if the total uninsured cost of replacing the water heater is higher than that amount.
Similarly, if you have a succession of minor repairs that add up to less than your deductible, you may not recoup your money after paying your premium and service charge.
Do a thorough inspection of your home and make a list of the systems and appliances you use frequently and think are at risk of breaking down before purchasing a home warranty. There needs to be enough risk of failure in your home for the warranty to be worth it.
The Advantages Of A Home Warranty Program
You shouldn’t discount the value of a house warranty just because it covers minor repairs.
Why? Because of features like these:
1. Easier to Schedule Services and Locate Service Providers
Outsourcing provider selection to your home warranty company can save you time and energy, but it is still important to complete your research before hiring any home service provider.
2. Lower Emergency Service Out-of-Pocket Costs
Your home warranty coverage may greatly minimize the out-of-pocket cost of emergency home service, leaving you with only the per-visit service charge and plan deductible, if applicable. We could have saved a ton of money on the expense of a new thermostat if our unexpected cold snap had been covered by our house warranty.
3. Less Frequent and Lower Unforeseen Costs of Homeownership
A house warranty can help homeowners avoid some of the more unexpected expenses of home ownership by providing known coverage for certain appliances and systems and reducing out-of-pocket costs for repairs and replacements.
4. Comfort for New or Unskilled Homeowners
When a home warranty’s monetary benefits fall short, the warranty’s other advantages may still be worthwhile. All but the simplest repairs should be left to professionals, and this is especially true for homeowners who lack experience or are certainly not handy.
5. Economical for Pricey, Out-of-Warranty Appliances
Plans that help pay for the cost of fixing or replacing high-priced appliances that aren’t covered by the manufacturer or extended warranties are where home warranty programs really shine.
Using the numbers from the previous section, our fictitious homeowner spent $175 out of pocket on a new water heater and paid $500 in premiums in the given year. Even the most basic tank models may cost more than $1,000 to set up, so you’re getting a terrific deal there.
6. Powerful Seller Incentives
In buyer’s markets, a home warranty plan that has already been paid for might be an enticing, low-cost incentive for purchasers. The difference between a speedy sale and a long time on the market could be as simple as the seller paying the closing costs.
7. The Consumer Benefits from Competition
Sign-up offers and discounts abound in the home warranty sector. It’s acceptable to haggle about premiums and service charges. In other words, you probably won’t have to pay the full sticker price for a home warranty plan if you don’t want to.
Disadvantages of a Home Warranty Plan
Before committing to a home warranty plan, think about these disadvantages:
1. Might Not Be Sufficient for Older or Neglected Homes
There is usually a limit on how much money a home warranty will pay for every service call. And many of them cap your coverage at a certain point in your life. Both of these factors may be relevant for older or poorly maintained properties.
2. Replacement Value May Be Weakened by Depreciation
The replacement value may be less than the amount you were originally quoted if your home warranty company accounts for depreciation.
For example, if the depreciated value of your old furnace is $800 and a new one of the same size and efficiency would cost$1,400, you would have to spend an additional $600 out of pocket or settle for a less desirable option.
If the appliance can be fixed, it may be more cost-effective to do so than to replace it if its depreciation has been significant.
3. The Policy Exclusions
Typical problems are often not covered by house warranty programs. Exclusions for tankless water heaters, tree root intrusion in piping, humidifiers, and window/wall air conditioners are overly restrictive. Policy provisions that have such restrictions are cause for pause.
4. The Requirement For Meticulous, Documented Maintenance
The upkeep requirements of certain home warranty programs exceed the money you will save. If annual maintenance costs for each insured device are $100, saving $200 or $300 on a single repair may not be enough.
5. Premiums Rise Immediately for Broader Plans
Would you like a home warranty plan that covers more systems and appliances, has lower or no deductibles and has fewer or no service fees? Just be ready to fork over the cash. Premiums for a high-tier plan are often double those of a basic plan, and sometimes even more.
6. Payments Made Out of Pocket at the Time of Service
Expenses for servicing your home are not always covered by home warranty insurance. Indeed, in addition to monthly or yearly premiums, most plans include some form of out-of-pocket expenses, such as per-visit service fees, deductibles, or depreciation allowances.
Plan participants should allocate funds for these expenses as part of their annual home maintenance budget.
7. Upselling Cannot Be Avoided
There is a strong financial incentive for service providers to try and offer consumers additional services or products beyond the scope of the initial call. Do some homework on potential alternatives before the call, and don’t give in to the pressure to buy extra services you don’t need.
Keep an eye out for any recurring contracts that might offer services similar to those included in your house warranty.
8. Redundant Coverage for Newer Homes & Appliances
Most brand-new home appliances have manufacturer warranties that last anywhere from one to five years. Premium cash-back credit cards and travel rewards credit cards frequently provide free extended warranties of up to three years on eligible purchases.
The majority of modern appliances still under warranty will be fine without any additional shielding. Similarly, homebuilder warranties on appliances and fixtures in newly constructed homes typically last up to 10 years.
9. Potentially Limited Options for Service Providers
Some home warranty providers do not have widespread networks of service providers in all 50 states. Make sure your neighborhood is well-served by partner providers before purchasing a home warranty package.
10. Rejected Claims Do Not Disapply the Service Charge
An already potentially crippling expense could get even worse if a denied home warranty claim doesn’t cancel the service fee for the visit.
11. Cancelling Can Be Expensive
Cancellation fees are a common feature of home warranty contracts. After the initial 30 days, most plans charge a cancellation fee of one to two months’ worth of payments if you decide to cancel your coverage.
It’s possible that you’ll have to pay hundreds or thousands of dollars more to terminate your insurance coverage because you’re responsible for paying for any covered services you used while the policy was still active.
How to Choose a Trustworthy Provider and Make the Most of Your Plan
There is a great deal of competition in the home warranty market, and, from the standpoint of the consumer, there is a lack of transparency. Follow these steps to locate a reliable home warranty service and get the most out of your policy.
1. If You Dislike Sales Calls, Avoid Requesting Free Quotes
The home warranty industry is aggressive. You can avoid sales calls and emails by not requesting quotations from warranty companies online. Discover your home’s premium and optional extra fees before committing to a quote.
2. Seek For Sign-Up Deals & Free Months
There’s a lot of rivalry in the home warranty industry. Numerous service providers provide trial periods or annual discounts to new customers (one to two is common). In a situation where two policies are virtually identical apart from price, it makes sense to select the one that offers the greater savings.
3. Never Be Afraid to Bargain
Homeowners have the upper hand in the house warranty sector, as least insofar as plan selection is concerned, due to the commoditization of the service. A real sales rep may be able to negotiate a better rate than what is stated, even though almost all providers now allow applicants to select and activate new policies online without ever speaking to a human being.
Fill out the online form for a free estimate, wait for a sales representative to call you, and then offer them a better deal than their competition. If you can negotiate a lower premium or service visit price, that’s excellent; if not, move on to the next provider.
4. Verify Warranty Company and Service Provider Testimonials
A home warranty’s built-in network of service providers is one of its many advantages. A home warranty organization will perform the legwork of researching and vetting service providers so you don’t have to. However, you should investigate and assess suppliers regardless, and the same goes for warranty firms.
If you want to succeed, try to emulate these guidelines:
- Utilize Trustworthy Ratings, Consumer Protection, and Informational Websites. Investigate prospective employers through both independent sources (like the BBB and Consumer Reports) and government organizations (like your state’s attorney general and insurance commission). You should stay away from affiliate review sites that serve as the marketing arm of warranty firms.
- Check out the website of the warranty firms. It’s not a good idea to sign up for a home warranty using an affiliate link without first visiting the provider’s website. Home warranty provider websites are more informative than affiliate landing pages, allowing for a more thorough evaluation of the company’s quality and reliability. Of course, you can still use affiliate links to make a purchase.
- Find Warranties That Have a Wide Range of Service Partners. Nationwide corporations having extensive relationships with a variety of service providers are typically more dependable and convenient to work with than their regionally based counterparts.
- Examine Business Strategy Consulting Firms. It is important to research individual providers and peruse provider lists to get a feel for the kind of care you may expect to receive from your plan. It should raise red flags if the Better Business Bureau gives a failing grade to every service provider on a warranty company’s list and there is an abundance of dubious reviews.
5. Choosing “Build Your Own” Plans When Appropriate
Designs for building your own home warranties that are carefully crafted may be less expensive than tiers of plans with extras you probably won’t need. The optimal “build your own” plan only contains the systems and appliances you anticipate needing repair or replacement in the near future.
6. Select Add-Ons Wisely
The use of different home warranty add-ons varies widely. If you have a pool or spa at your house, it may be worth it to add them to your plan because of how much money they cost to maintain. On the other hand, you may not want to include things like a central vacuum that haven’t cost much so far or that you have no interest in maintaining.
7. Carefully Review The Small Print.
Before signing a contract for a home warranty, be sure to read all of the fine print. Pay close attention to the following potential constraints:
- Amount of time that must pass before your warranty begins covering any problems (usually 30 to 60 days from sign-up)
- Coverage caps per visit, appliance, year, and/or warranty duration.
- Limitations on the scope of protection for certain appliances and systems
- Constant upkeep documentation needs
You can try to haggle over the specifics of your contract, but ultimately, you shouldn’t commit to a plan that makes you unhappy.
8. Keep Covered Systems and Appliances up to Date
A warranty’s maintenance obligations may seem like more of a burden than they’re worth, yet failing to do so can result in a claim being refused. In any case, the performance of your systems and appliances will improve with regular maintenance, which could lower your long-term costs of homeownership.
9. Refuse to Buy Upsells You Don’t Need
Home warranty businesses attract local service providers because they guarantee a continual stream of captive clients who have an immediate need for repairs or replacements to their home’s appliances and systems.
Potential buyers like this should be your primary focus. After all, if you’re going to replace your heater or water heater anyhow, you might as well get the best one you can afford.
Your home warranty provider will not, however, pay for this improvement; you will. Don’t give in to the service providers’ repeated persuasion tactics if you want to avoid paying far more out of pocket than you bargained for or could afford.
10. Discontinue or Reduce Needless Coverage
If your home warranty plan is losing money, don’t hesitate to reduce or cancel it. Compare the premiums, service fees, and deductibles for your home warranty versus the amount you can expect to save at least once a year. If you can’t afford your current plan, consider switching to a less expensive one or canceling before your renewal date.
11. Claim Adjusters’ Documented Communications
Keep detailed notes of all communications with the claims department of the home warranty company. An automatic Call Recorder is a good, low-cost option for recording your team’s calls; just be transparent about it, as the legality of doing so varies from state to state.
Document the “before” and “after” of any home warranty-related repairs or improvements. You should also keep all paperwork connected to filing a claim, including receipts for services rendered and claim forms.
12. Act Immediately on Claims Issues
The claims department of your home warranty company should not be giving you the runaround; if you feel this is the case, escalate the situation immediately.
Make it clear that you are prepared to file complaints with your state’s attorney general, consumer protection office, and insurance commission and then actually do so if results do not improve as you go up the ranks of supervision. Put bad feedback on Angie’s List, HomeAdvisor, and the Better Business Bureau page for the company.
After discussing it with my wife, we opted against buying a home warranty coverage. However, we realized we had to take action to prevent a recurrence of our thermostat disaster, which had resulted in not only the unpleasant experience of coming home to a freezing house but also the unpleasant experience of receiving a hefty bill for repairs.
We decided on a do-it-yourself approach, establishing a home maintenance fund to cover the many expenses that all homeowners eventually confront.
We have interest-bearing savings account at a well-known internet bank for our home upkeep fund. We pay into it regularly and withdraw as needed. The amount we owe on it is already greater than what we anticipate paying to replace our boiler, the oldest mechanical device in our home.
We probably will; it’s older than us, after all. Meanwhile, we’ve used the money from the fund to pay for at least half a dozen separate repairs and renovations around the house.
It’s not a home warranty, but it’s a lot less complicated to deal with. Join us in avoiding house warranties if that sort of thing doesn’t appeal to you.