Buying a Home September 16, 2020

Is a Home Warranty Right for You?

The idea of a home warranty can sound great. The definition of home warranty is “a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear” (National Association of Realtors). Coverage is for systems and appliances in good working order at the start of the contract.

It sounds simple: You insure critical systems in the home, and should something go wrong with those systems, the insurance company largely covers the cost of repairs. And it’s true, a home warranty can be exceptionally valuable, especially in the first year of homeownership, when you’re still getting a feel for the overall health and maintenance status of your home.

For basic home warranty coverage, plans average from $350 to $600 per year. An annual premium and service charge is also referred to as a deductible paid by the homeowner for each claim. This fee ranges from $75 to $100 for each repair or replacement.

Sellers often offer a home warranty to ease buyers’ concerns over their first year in the home. In fact, in states where foreclosures are common, home warranties are practically the norm. If a buyer is looking at two comparable homes, a warranty can be a competitive advantage.

But as with all insurance policies, the fine print matters. When researching home warranties, you must be certain of what the policy covers and how the insurance company honors claims. For big-ticket items like heating and cooling systems, the home warranty can be a massive cost savings, often reducing out-of-pocket expenses to less than 10% of the total. However, with smaller appliances and simple repairs, the deductible/service fee can cost you as much as the repair would on its own. Plus, it’s vital to know if the warranty will replace versus repair aging appliances. (Many companies will repair an old stove or refrigerator rather than replace the unit with a more energy-efficient model.)

You should also be aware when having a home warranty isn’t required on certain home features. For instance, if you have a dishwasher or water heater that is already under the manufacturer’s warranty, the home warranty coverage may be superfluous. However, if you have major systems with considerable age, the warranty can be worth the investment.

Be aware of the terms of the warranty when it comes to maintenance and neglect. Occasionally, home warranty companies will try to get out of paying for repairs or replacement by claiming you haven’t kept up with routine maintenance issues. To ensure you don’t get caught out on these technicalities, understand how the insurance company justifies these claims.

We have found that homeowner’s insurance is most valuable for more extensive repairs rather than smaller ones such as a leaking sink or a toilet that keeps running.  Insurance is always a complex business, but don’t shy away from investigating a home warranty if you’d like some protection from major, catastrophic repairs.

In addition, check with the insurance company for a list of providers in the Prescott area.  Unfortunately, most claims are ‘emergencies,’ and you will want to make sure they have service contractors ready to take care of your needs quickly.

With a little diligence, you can get the coverage you need.  If you have any questions about where to get home warranty quotes, get in touch with me today.