If your furnace dies on a blustery winter morning, you'll need a few hundred dollars to get it fixed or, worse yet, a few thousand dollars to have it replaced. The same could be said for the refrigerator, oven, plumbing system, water heater, air conditioner, electrical system, washing machine, clothes dryer, or garbage disposal. Unless, of course, it's under warranty or covered by a home service plan or home warranty.
When Things Go Wrong
The complexity of modern homes, and the cost to keep them running smoothly, is one reason more homeowners than ever before are turning to home warranties. The other reasons are the aging of the American housing stock, and the desire homeowners have for—as home warranty companies invariably put it—"peace of mind."
Home warranties, also known as home service plans, are not new—they have been around since at least 1971. According to the Better Business Bureau, home warranties and service plans overall are increasing in popularity.
The appeal of home warranties is obvious. For an annual flat fee of about $400 or less, most warranties will pay for repair or replacement of your home's appliances and systems that fail because of normal wear and tear. Policies are typically issued without a home inspection, take effect 30 days after payment is received, and cover appliances and systems that were in good working order when the policy was ordered.
With just one toll-free call, a good home warranty can make life simpler no matter what goes wrong. There is typically a deductible to pay when a service technician comes out. Deductibles range from $35 to $100, but the policy pays for covered repairs beyond that.
Who Needs a Home Warranty?
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How Long Things Last
Life Estimate in Years |
| Dishwashers |
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5 to 12 |
| Disposals |
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5 to 12 |
| Washers and dryers |
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8 to 12 |
| Water heaters |
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8 to 12 |
| Refrigerators |
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15 to 20 |
| Stoves |
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15 to 20 |
| Gutters and Downspouts |
| Galvanized |
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15 to 20 |
| Copper |
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Life of home if well maintained |
| Heating and Air Conditioning |
| Warm air furnace |
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8 to 12 |
| Heat pumps |
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8 to 12 |
Air conditioning
compressors |
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8 to 15 |
Gas powered air
conditioner |
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8 to 15 |
| Hot water boilers |
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30 to 50 |
Source: Freddie Mac |
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If you just bought a new home, your builder likely handed you a stack of warranty and maintenance documents for various elements in your home. Virtually all new appliances and systems are already covered by a manufacturer's warranty. A home warranty will not kick in until those warranties have expired.
The National Institute for Consumer Education at Eastern Michigan University states that most defects in appliances show up while the item is still under the manufacturer's original warranty, or after a store bought extended warranty has expired. So, while you may be encouraged to buy third-party extended warranties for individual appliances at the time of purchase, the consumer Web site believes “The only ones getting a good deal are the sellers who find these programs very profitable."
Dollar for dollar, it's far better to purchase a home service plan or home warranty that takes all systems and appliances into account, no matter the age or place of purchase. Indeed, home warranties make great sense when the house and its appliances and systems start to wear, perhaps after 10 years.
Help Your Home Sales
Most home warranties or service plans are transferable, so a warranty brings a level of security to a home's sale, especially as it moves through escrow. According to some real estate experts, a home with a warranty in place sells faster than one without. And new homeowners, who might have overextended themselves financially to buy the house, may not have a cushion for unexpected repairs. Just make sure that your plan can be transferred with the house before making any promises.
Granted, there will always be handy people who prefer to make their own repairs. These people may be better off banking or investing the $400 policy cost, and using it when needed. Likewise, people who want the freedom to hire the repair company of their choice might not be happy with contractors approved by the warranty company. Read the home service plan carefully and see if your needs are met by their coverage.
Choosing a Home Warranty
All policies and companies were not created equal, and the key to choosing the right home warranty is research. You need to know what's covered and what isn't.
Policies vary radically, making it impossible to list all the variables here, and only your study of the fine print will help you to manage your expectations. Most policies cover these home elements: air conditioning unit, central heating unit, ductwork, electrical system, paddle fan, plumbing system, water softener, water heater, refrigerator, built-in dishwasher, built-in microwave, oven/range, garbage disposal, built-in trash compactor, central vacuum, and washer and dryer. If it's the security system you're looking to cover, or a pool or spa, you may wish to look further.
A good first step would be to list the issues with your home that concern you the most, and read individual policies to determine the level of coverage. If you live in Tucson, Arizona, for instance, you're probably more concerned with the air conditioning system coverage than if you live in Bangor, Maine. In the North, furnace coverage is much more of a priority.
Understanding What Is Covered
Don't just glance over the contract or you're likely to be disappointed later on. One policy may say it covers invasions of pests, a definite plus, but the fine print excludes termites, carpenter ants, rats and wood-boring beetles. Again, policies might list the "plumbing system," but exclude damage done to pipes by tree roots. This may or may not be a problem for you. Take the time to read the contract before you decide.
Once you find a policy that covers your "hot-button" issues, either with a basic plan or with added options that cost more, ask yourself who will make the repairs. Most companies have agreements with outside contractors to do the work. If you bring in your own favorite plumber who is not approved, the repair will not be covered.
Definitions of how plans can be sold vary from state to state. In some areas they are considered warranties, in others they might be sold as insurance or a service plan or contract. Also, many states have their own laws and restrictions for warranty programs. In Nevada, for instance, the breakdown of heating or air conditioning renders the residence uninhabitable. As a result, service must commence within 24 hours.
The peace of mind you seek in a home warranty will only come if you buy the right policy, from a reputable company. Time spent researching the policy and company now will pay off later when you're most likely to need it.
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