All About Home Warranties

By Catherine Powell

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Now that I’ve found myself working from home for the past few weeks, I have to admit I’m spending more time watching TV than usual.  While I try to tune out most commercials, one that caught my attention was for a home warranty company.  The ad makes the case that if you own your home, the last thing you want to do is wind up plunking down a big chunk of change when any of your major appliances go on the fritz.  When you consider the cost of washers, dryers, water heaters and dishwashers cost hundreds of dollars, refrigerators and ovens can cost $1,000 or more, and central air conditioning systems cost multiple thousands to replace, then insuring them might be a good idea.  Especially since your homeowner’s policy doesn’t cover these items for normal wear and tear.  So, I thought I’d look into the matter and provide my loyal readers with some food for thought.

What’s the difference between a warranty and insurance?

Like it or not, what some choose to call a warranty is in fact just an insurance policy by any other name.  Like all insurance policies, coverage and exclusions differ from one home warranty to another.  So too do the prices.  Like your homeowner’s policy, home warranties pay to repair or replace covered appliances and systems in your home that fail as the result of normal wear and tear.  Just don’t make the mistake of thinking that a home warranty is like some kind of blank check.  Just like insurance policies the world over, before a company pays to repair or replace anything in your home, there are a few things that have to happen first:

1.      When a covered appliance or system fails, you first need to call the warranty company. 

2.      The warranty company will then dispatch a technician to assess the condition of the unit in question.  (For those who’ve filed a claim with their homeowner’s policy, this step is analogous to having your insurer send out an adjuster.)

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3.      If the unit is covered, the home warranty company will then pay to have it repaired or replaced.

4.      If the unit isn’t covered by your home warranty, you’re on your own.

What’s the difference between homeowner’s insurance and a home warranty?

Homeowner’s insurance covers your appliances and other systems in your home when disaster strikes.  If your house burns to the ground or is swept away by a windstorm, your homeowner’s insurance kicks in.  If vandals wreck your home or thieves pull up a moving truck while you’re away on vacation only to strip your home bare, homeowner’s insurance will pay to replace much of what was stolen.  However, if your 10-year-old side-by-side refrigerator gives up the ghost or your home’s central air conditioner simply stops working, this isn’t covered under your homeowner’s policy.  For that, you’ll need to either pay out of pocket or pay for a home warranty.

How much do home warranties cost?

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Just like any insurance policy, the more items that are covered in a home warranty, the higher the cost.  Aside from major appliances and systems, some companies will permit homeowners to take out a warranty on their swimming pool if they so choose.  Since many homeowner’s live in fear of having to write a big check to cover a major repair that occurs out of the blue, home warranties have become a big business.  While it’s true that the monthly payments are more affordable when compared to paying thousands to replace a major appliance, the coverage has a few caveats you need to know.

      1.      The warranty company will only pay to repair or replace a covered appliance or system that has been properly maintained.  If you neglected to maintain a unit, or recently moved into a home which makes it difficult to prove the unit was properly maintained in the past, good luck trying to get the warranty company to pay up. 

      2.      The more appliances and systems included in the home warranty, the higher the yearly cost. 

      3.      Even when a repair is covered by the warranty company, you can expect to cough up a service fee between $50-$125 every time they send out a technician to assess a covered unit that has broken down.

      4.      It’s up to the discretion of the warranty company to decide whether a broken unit in your home is repaired or replaced.

5.      Most warranties have a set limit on the number or cost of repairs or replacements that are covered during any given year.  Even when the warranty company does opt to replace a unit, since they’re the ones footing the bill, they get to choose the replacement.  (This is why you need to read the fine print on all home warranties before you sign on the dotted line.)

      6.      You lose the ability to choose who repairs appliances and systems in your home on all covered units since the warranty company decided on the contractor.

      7.      Depending on how new the appliances and systems in your home happen to be, it could be a long time before you ever see a return on investment with a home warranty.

If the thought of having a financial meltdown over the loss of a major appliance makes you break out in a cold sweat, look into the costs and benefits of adding a home warranty.  Just make sure you factor in both the pluses and minuses including all the variables involved in getting paid for repairs and replacement for any appliance and system you’re looking to cover.  Depending on the yearly cost of obtaining a home warranty, an alternative would be to set up a savings account to deposit the same money to create a repair & replacement fund that you would have complete control of on your own.

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more ways to save on flood insurance, check out her website at http://aplusallfloridainsuranceinc.com/