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Is a Home Warranty A Good Idea?

Under the right circumstances, a home warranty can save home owners money and anxiety. However, many first time home buyers have never had experience with home warranty companies, and do not know whether or not the home warranty is right for their needs. Knowing how home warranties work and what they do and don't cover can help you decide whether or not to purchase a home warranty when you buy a home.

Difference Between Home Insurance and Warranty

One of the big questions home buyers ask is, what is the difference between home owners insurance and a home warranty?

Home owners insurance covers certain types of damage to your home's structure, and also covers loss of possessions under certain circumstances. Fire and theft are common types of covered damage covered by homeowners insurance.

Home warranties protect specific home components and systems. For example, your home warranty may cover the plumbing, electrical system and specific appliances in your house. If your bathtub becomes clogged or your dishwasher breaks, your home warranty may cover the cost for repairs.

What Home Warranties Do and Don't Cover

A typical home warranty will usually cover the water heater, a limited number of kitchen appliances, furnace, plumbing, sump pump and exhaust fans. Certain enhanced plans may cover the air conditioner, refrigerator, pool fixtures or the washer and dryer.

Often home warranties will only cover one of each type of appliance. For example, if your home is warmed by more than one heat source, your home warranty may only cover the furnace that supplies heat to most of the house. It is important to understand exactly what is covered before choosing to go with any warranty.

How Home Warranties Work

A typical home warranty plan will cost several hundred dollars for a year of coverage, and the enhanced plans cost extra. If a covered system of the house breaks down, the home warranty company will usually be the one to contact one of the appliance repair companies in the area. When the repair person comes to the home, the homeowner may have to pay a service fee, however.

Is a Home Warranty Right For You?

Considering that most home warranty companies charges a service fee for each repair, and the home warranty itself costs money on top of the service fee, not all home buyers will find that home warranties are worth the cost. If one buys a condo in Lake Shore Drive, they may find that the cost plus what their building already covers might be excessive.

You can decide whether or not a home warranty is worthwhile by assessing the age of your home's appliances and the expected life expectancy of each appliance. If your home has been around for a long time and has old plumbing, old electrical service and old appliances, you may be more likely to benefit from a home warranty than if you own a home with brand new systems.

Investigate Before Buying

Not all home warranties are created equal. If you think that your home could potentially benefit from a warranty, contact multiple warranty companies to compare prices and benefits.

Questions to ask each company include:

  • What components of the house are covered under each plan?
  • How much is the service fee?
  • Are pre-existing conditions covered?
  • Will the policy replace faulty appliances?

Some Home Sellers Offer a Warranty As a Perk

Before spending too much time trying to decide whether or not you should get a home warranty, you may want to wait until you begin negotiations for a home. Some home sellers will offer to pay for a home warranty to sweeten the deal and keep buyers interested. If the home warranty selected by the buyer doesn't cover all systems that you would like to see covered, you may be able to upgrade your policy by paying the difference after moving into the house.

When in doubt, talk to your real estate agent. They will have experience guiding home buyers through this process, and getting a second opinion is always helpful.

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