What is a Home Warranty?
If you wonder what a home warranty is, it definitely is not homeowners insurance. The two are different entities where homeowners insurance covers major dangers like hail, property crimes, fire and water damage damaging the house’s structure or homeowner’s possessions and home warranty only covers specific house components.
The homeowner and home warranty company sign a contract agreeing to provide discounted repair and replacement of major home components like air conditioning, furnace and electrical system and major appliances like dryers, washers, refrigerators and swimming pools. While all plans provide some coverage, additional or optional components for additional coverage can be bought at an additional cost.
As the home warranty company has an agreement with approved service providers, whenever something covered by the warranty breaks down, the homeowner just has to call the home warranty company who in turn sends their service providers to check the problem. If the warranty covers the repair or replacement, he completes the work and the homeowner has to pay only a small service fee as he’d already bought the warranty.
Cost
Home warranties cost a few hundred dollars to be paid upfront or in installations if there is a payment plan. The plan varies between a basic or extended plan and depends on the property type. It does not depend on the property’s age unless the house is brand new wherein increased coverage is needed. While the house’s size has no difference, separate structures like guest houses which are not usually covered can be covered for an additional fee. Garages are however covered by the basic policy.
Besides the annual premium, home warranties charge a service or trade call fee every visit made to the warranty holder requesting an examination of a problem. If the problem requires the attention of more than tradesman like a plumber and electrician, the homeowner has to pay service fee for both of them.
Home warranty owners are not necessarily free from spending any money on home repairs. They have to pay for repairs or problems not covered as the warranty company doesn’t offer coverage for the item or because the homeowner didn’t buy coverage for the item. The warranty also does not cover components which haven’t been properly maintained and if the company denies a claim, the homeowner will have to pay the service fee and is responsible for repair costs.
Advantages
As home warranties protect against expensive and unexpected repairs, the warranty is like a buffer to homeowners who don’t have emergency funds or want to save the emergency fund. Home warranties are also useful for homeowners who are not handy around the house, or who don’t want the responsibility of locating a contractor if they have problems. Warranties are also worthwhile to those who buy expensive appliances.
Home warranties can be helpful to homebuyers who don’t know much about maintaining a home’s components and for those who have spent his savings on a home and want to avoid additional further expenses.
Disadvantages
Like most things, home warranties also have disadvantages like not having coverage for poorly maintained items. The problem is that it’s impossible to clearly define poor maintenance. Unscrupulous warranty companies take advantage of this and consider improper maintenance to be an excuse to deny valid claims. On the contrary, homeowners and the house contractor may disagree about whatever constitutes proper maintenance.
Another drawback is if a homeowner buys a used home with poorly maintained appliances, no matter how well the new homeowner tries to maintain them, it’s not possible to correct the previous lack of maintenance. Moreover, a home warranty has numerous exclusions and limits on the amount spent on annual repairs.
It is true that home warranties are cheap when compared to repairing or replacing most home’s components. However in case nothing breaks down or wears out in the house, the hundreds spent on home warranty premium goes to waste. Moreover, if the homeowner uses the warranty and the claim is denied, the premium money and service call fee is wasted.
Conclusion
Home warranties do not provide a solution to a homeowner’s risks. You need to read the fine print on the contract before buying one, and carefully consider if the warranty is worth it. Moreover, do some research on the home warranty company to ensure they will actually pay for all needed legitimate repairs.
