Solved! Is a Home Warranty Worth It?

Is a home warranty worth it? As long as you read the contract carefully, a home warranty can be a great safeguard against disaster.

Home Warranty Worth It

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Q: We’re shopping for our first home, and while we are sure to get homeowners insurance, we’ve heard of home warranties, too. What exactly is a home warranty, and is a home warranty worth it?

A: This is a fair question. Home warranties can feel like an extra grab for your hard-earned cash at a time when you’re already juggling more decisions than you thought possible—neighborhoods, bedrooms and bathrooms, mortgage rates and lenders, and insurance policies—for one of the biggest investments you’ll ever make. With appliances and vehicles, purchasing a warranty depends on the balance between the cost of the item and the cost of the likely repairs. In the case of a home warranty, however, the potential value can be measured. If you listen to people who have owned a home for years chat about their experiences, you’ll inevitably hear the phrase “That’s the cost of homeownership!” Or you may hear them talk about the maintenance or system disasters that have befallen them over the years, leading to unexpected and sometimes unmanageable expenses. A good home warranty can protect against unanticipated costs by providing a service contract that covers major home systems and appliances. Many of the issues that homeowners insurance excludes, such as maintenance and repairs that result from age and wear and tear, may be covered. However, there are limits to what a home warranty covers, so it’s key to read the contract carefully and make sure you know exactly what you’re paying for and what actions you need to take to maintain the coverage.

Interested in getting a home warranty? American Home Shield is a lead provider in home warranties and covers up to 23 appliances and systems in your home, meaning that you can stay within your budget when it comes to costly repairs.

A home warranty’s worth is only as good as what it covers.

Home Warranty Worth It Depends on What It Covers

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This is the trickiest part of deciding whether to purchase a warranty and how to value a warranty offered by a home seller. As with any warranty, there are exclusions—possibly in very small print—and a lot of details to read carefully at a time when home buyers are already reading paragraphs full of details. You should expect to find and consider the following information in a warranty you’re considering:

  • Which systems and appliances the policy covers
  • Which systems and appliances the policy does not cover
  • Conditions under which the warranty is voided (for example: transfer of ownership, failure to maintain, attempted DIY repairs)
  • What percentage of a repair or replacement will be covered, and any policy limitations
  • The cost of service visits

After the list of covered systems, the most important section for a home buyer to read is the conditions that will void a warranty. Your new warranty won’t help you replace your furnace if the coverage is voided as a result of the previous homeowner neglecting to clean or service the furnace in the last 10 years. In addition, you’ll need to know if a DIY fix will invalidate your coverage, because it will help you make decisions about when it’s worth it to call in a contractor to assess problems rather than trying to do quick repairs yourself that might cost you more later.

A home warranty protects both a home buyer and a home seller.

Most questions about home warranties come from home buyers, and rightly so: Most home warranties are marketed to new buyers to protect their investment, and many sellers choose to offer them to sweeten the deal on an older home. But a warranty can provide a great benefit and excellent protection to the seller as well. Deciding to sell a home entails many decisions—what to upgrade or repair, what to leave as is, and what asking price fairly takes all those aspects into account, along with balancing these choices against the cost of a new home. Once that difficult work is done, the seller is at the mercy of the home and its systems. Should something fail, the seller will have to repair or replace it in order to continue with the sale, or they might need to adjust the asking price. In addition, in many states new homeowners have up to a year (in some cases, longer) to ask the sellers to pay for substantial portions of repair and replacement of systems that fail shortly after the purchase. A home warranty can protect the seller by covering the majority of those types of costs; selling a home is complicated enough without having the worry of unanticipated expenses after the sale.

Home Warranty Worth It Supplemental Insurance

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A home warranty can supplement homeowners insurance.

Homeowners insurance covers damage and theft: If your home is hit by a falling tree during a storm, torn apart by a tornado, or the target of a break-in, homeowners insurance will help you restore the home to its former state. However, homeowners insurance specifically excludes system failures and appliances that stop working as a result of age, improper maintenance, or normal wear and tear. This is where a home warranty can be a good investment: If you’ve maintained your systems regularly and can demonstrate that they’ve been in good working conditions, the warranty can cover a significant portion of the repair or replacement of a boiler that’s stopped working, a water heater whose thermocouple has failed, or an oven that won’t ignite. Together, a home warranty and homeowners insurance protect you and your home from unexpected and significant expenses.

You’ll never be required to have a home warranty policy, but in some cases, it’s a good idea.

You’ve found your dream house, but there’s a single flaw: The driveway is endlessly long, and you’re worried about the cost to repair it if it cracks. Or perhaps there’s a well system instead of city water, and you know nothing about maintaining or repairing it. A home warranty can push that concern out of the way and open the door to purchasing a house you love so you don’t have to worry too much about specific maintenance issues. Home warranties are especially helpful in the purchase of older homes (or as a separate purchase if you already live in a home that’s aging), where many systems may be aging simultaneously, and while in good condition at the time of purchase, threaten to fail at the same time. As a home seller, a home warranty can protect you from claims after the house has sold or during the sale—the last thing you want to face is the expense of repairing a failed sewer line just before you sign the contract to sell your home. There are certainly times when a warranty isn’t necessary, especially in newer homes where the systems and appliances are still under their original warranties or have years left in their expected lifespan, and you shouldn’t ever be forced into purchasing one.

Home Warranty Worth It Read the Fine Print

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If you opt for a home warranty, read the fine print to know how you’re covered.

Before purchasing a home warranty, you’ll want to read the contract carefully and do some investigation into the company offering the warranty. Many times consumers complain that a warranty wasn’t worth the cost because they didn’t get the payout they were expecting, but the exclusion in which they were caught was plainly stated in the contract. Check the Better Business Bureau and your state’s Attorney General’s office for complaints about the company. In addition, many states require home warranties to be registered or licensed with the state’s insurance regulators, so find your state’s regulators by checking with the National Association of Insurance Commissioners. Read through the complaints (bearing in mind that these can essentially be a list of complaints from angry people and don’t necessarily show the whole picture) and any actions taken by the regulatory boards, which can be instructive and can help you avoid unreliable companies. Finally, check the distinction between system and appliance repair and replacement: You may think the whole system needs to be replaced, but the warranty company may choose to repair it instead, and either way you may have no control over the company doing the work or the type and brand of the replacement parts.

Interested in getting a home warranty? American Home Shield is a lead provider in home warranties and covers up to 23 appliances and systems in your home, meaning that you can stay within your budget when it comes to costly repairs.