Is it worth paying a home warranty? | personal finance

Your home may be your biggest investment, but you’ll need more than homeowners insurance to protect it. While a homeowners policy will cover damage from incidents like fires and falling trees, it won’t pay for roof leaks or heating failures. Fortunately, there is another type of plan that will cover these expenses.

“Home warranties provide budget protection for homeowners (and) help with the high cost of failing systems and appliances,” explains Alexia Bertsatos, a real estate agent with EXP Realty in the eastern Arizona Valley.

However, warranties can cost hundreds of dollars and many have exclusions. Before you buy one, read on to learn more about how these plans work and if they’re worth it.

What is a home warranty?

A home warranty will pay to repair or replace covered appliances and systems. Some, like those purchased at the time of a home sale, provide coverage for a specific period of time, such as one year. Other plans are sold on a subscription model and charge a monthly fee to provide ongoing protection.

When a repair is needed, owners generally need to call the warranty company to schedule a service call. There may also be a fee associated with these visits.

What does a home warranty cover?

Warranties generally cover major systems like heating, plumbing and roofing, but coverage details can vary significantly from plan to plan.

“Most home warranty companies offer customers the opportunity to choose the plan that best fits their unique home,” says Raj Midha, senior vice president and general manager of American Home Shield, a home warranty company. home. He points out that American Home Shield has customizable plans that can cover 23 appliances and systems, including swimming pools, roof leaks and electronics.

With so many options, homeowners need to be diligent in understanding what is covered, and excluded, by any plan they purchase. “For example, even though HVAC systems are included, many warranty companies don’t cover refrigerant costs,” says Bertsatos.

Home warranties are also evolving, according to Glenn Orgin, founder and CEO of Richr, a real estate sales platform. He points to an inspection protection plan offered by the Hippo insurance company, which offers coverage when a home inspection is completed through one of the company’s partners. Then the house is covered for one year and up to $100,000 against defects the inspector might miss.

“It’s very much a game changer,” Orgin says. Traditional home warranties don’t typically cover structural defects like foundation, leveling, or ventilation issues, but Hippo’s Inspection Protection Program will.

How much does a home warranty cost?

Just as warranty coverage can vary, so can the cost. Basic home warranty coverage can cost as little as $300 to $400 per year, but prices can run into the thousands.

“I’ve seen them go up to $3,000,” says Orgin. “The higher the price you are willing to pay, the greater the coverage.”

Prices may vary depending on several factors:

  • Coverage plan.
  • House size.
  • Service call cost.

“With American Home Shield, you typically choose from three options (calls of service) that help you manage your budget and out-of-pocket expenses,” says Midha. Depending on the option selected, service calls can cost owners $75, $100 or $125.

To make warranties more affordable, many companies allow customers to pay monthly. Prices can start at $40 per month and can go as high as $75 per month or more.

Should you buy a home warranty?

Newly built homes often come with their own warranties, but a home warranty can be a smart purchase for an existing home.

“I always encourage my buyers to get a warranty,” says Bertsatos.

While inflation is rising, Midha says homeowners can lock in the price of a home warranty by signing up for an annual plan. An added benefit of a warranty is the ability to connect with reputable contractors.

“If you’re a new owner, you probably don’t have someone to turn to for repairs,” says Midha. “Home warranties give you access to a network of local licensed and vetted professionals, taking the hassle out of the process.”

Home warranties are typically purchased by buyers, but can be beneficial to sellers as well. Owning one can encourage a quick sale and can give you peace of mind that any future problems won’t come back to haunt the old owner. “That allows the seller to sleep at night,” says Orgin.

However, not everyone needs a home warranty. Newly built homes may be covered by a builder’s warranty, and it may make financial sense to waive a warranty on a newer existing home if the inspection turns up nothing of concern.

For older homes, there are some cases where it may be better to save money in an emergency fund instead of buying a home warranty. For example, those who prefer to do their own repairs or choose their own repairman can avoid the expense of a warranty. Also, some policies will not pay expenses if a device or system has not been properly maintained. If an inspector indicates that a system has been neglected, it may not make sense to buy a warranty that probably won’t cover repair costs.

Finding a reputable home warranty company

You can purchase a home warranty when you buy a home or at any time afterward. There are generally no inspection requirements for most warranty programs.

Regardless of when you buy the warranty, do your homework to make sure you’re dealing with a reputable company. Legitimate businesses must be licensed or certified by the state, Orgin says. And Bertsatos recommends checking out online review sources like Trustpilot and the Better Business Bureau. Most real estate agents can also provide recommendations for tried-and-true businesses.

Before you sign up, make sure you understand the following:

  • Annual cost of the guarantee.
  • Coverages and exclusions.
  • Cost of service calls.
  • Process to receive the service.
  • Average response time.

Many companies require customers to use their service providers and do not reimburse for services scheduled with third parties. Also, pay attention to response times. While you may be able to live without a dishwasher for a few days, if you live in Arizona and your air conditioner breaks down, for example, you don’t want to wait long for a repairman to arrive.

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