Your furnace goes out. Now what? It’s a costly repair that can really take a toll on your pocketbook. There are many people that rely on home warranties to repair their appliances. Home warranties are service contracts that are designed to cover appliances and other items that can break within the home. However, the age old question is - are home warranties worth it?
First, it’s important to understand the difference between a home warranty and home insurance. A home warranty typically covers repair and replacement costs for appliances – with a service fee. Home insurance covers appliances, but normally won’t cover them unless damage occurs to the house - for example, a fire, flood or theft.
The Pros - For sellers, home warranties that are included on a home they are selling can be a big bonus. According to a recent survey by a large home warranty provider, homes that come with a warranty sell 11 days quicker and make an average of $2,300 more that those that do not. Buyers can have the reassurance that their appliances are covered and possibly save up to thousands of dollars.
The Cons – Many consumer reports argue that home warranties aren’t worth the cost - $400 to $600 a year. One complaint is that many claims are denied because it is determined to be a pre-existing condition. Claims are also denied because the appliance hasn’t been maintained properly. Other problems included no coverage on more expensive items like leaky roofs or basement moisture and extra charges for things like plumbing and heating.
If you’re ready to purchase a home warranty, here are some tips to consider:
- Check out multiple providers. Just like with any purchase, review your options. Also, make sure the company has the proper licensing and other requirements to provide a home warranty.
- Review the contract carefully. As mentioned, there are many reasons a claim can be denied. There are also many appliances that could possibly not be covered under your plan. Read the contract carefully, including the fine print.
- Create a budget. Add in the payment to your monthly budget. Include a possible service charge – which could range from $50 to $100.
- Talk to your real estate agent. Keep your agent in the loop about your search for a home warranty. They may have a good relationship with a company and know who to watch out for.