by HRRC Financial Counselor Keesha Allen. Many homeowners – both new buyers and existing owners – struggle with the choice of whether to purchase a home warranty or keep a policy they bought previously. Home warranties are similar to other product warranties, in that there are specific terms and conditions that should affect your decision. Here are some things to think about when considering whether or not a home warranty is right for you.
As with any legal document, you should read the terms and conditions of the warranty before determining whether or not purchasing one is a good investment. Whether the warranty covers a car, electronic equipment, or your home, be sure you understand what is covered, the limitations of the policy, and any fees you will need to pay. In most cases, the warranty will cover any claims under a service contract – so, when something goes wrong, you will need to contact the specified company and they will send a repair person of their choice. You may need to pay a deductible to have an appliance or system checked and fixed. Warranties vary from company to company, but generally cover kitchen appliances (range or oven, dishwasher and built-in microwave), garbage disposals, plumbing, sump pump, water heater, ceiling and exhaust fans, and heating and electrical systems. You may also purchase enhanced warranties, which cover other appliances such as air conditioning systems and refrigerators. With any additional coverage, be sure to check the service limitations per appliance to better gauge whether or not the policy is worth the cost.
Newly-built homes typically come with a one-year warranty on appliances and systems and a 10-year warranty on structural elements, paid for by the builder. Buyers of existing homes often benefit when a seller includes a home warranty as an incentive for purchasing. Home sellers, particularly if they are selling a home with older appliances and systems, can purchase a one-year warranty that will protect them while their house is on the market and can be transferred to the buyers when ownership transfers. The warranty protects the new homebuyer from potentially costly repairs, and also protects the seller in case something goes wrong while the house is on the market. A new homebuyer should be sure to understand all the terms and conditions of the warranty prior to signing on. The buyer should also check when and if renewing the warranty will be an option, so they will be prepared for the additional financial responsibility of paying it themselves.
A home warranty generally costs $350-$500 for basic coverage and $100-$300 more for extra protection. (These fees are usually paid up front). The plan’s cost will depend on the property type and whether you have a basic or extended plan; the property’s age and square footage are not taken into account when determining costs. In addition to paying an annual premium, homeowners are usually charged a service fee or “trade call” fee of about $50-$75. You may be asked to pay more if several systems need repair and you have to use different contractors.
Having a home warranty doesn’t necessarily mean that the homeowner will never have to spend money on home repairs, as some problems are not covered. A warranty company has the right to deny a claim, requiring the homeowner to pay for the repair on their own. When budgeting for home maintenance costs, be sure that you are not solely relying on a warranty to fix or replace everything in your home. It’s a good idea to deposit funds for repairs in a separate savings account, so you have a “cushion” for repair or maintenance costs. By having such maintenance savings – whether you decide to purchase, renew, or cancel a home warranty – you’ll be financially prepared for any unexpected repairs you need to make.