Are home warranties worth it?

Written by Posted On Tuesday, 30 May 2017 06:57

Are home warranties worth it?

One of the first experiences most homeowners have with a home warranty comes from their initial purchase of the property. Some buyer’s real estate agents make a habit of recommending that buyers negotiate for the seller to pay for a one-year home warranty on a used home. Throughout the years in a home, you may also receive numerous offers to purchase a renewed home warranty via mail or email. With this in mind, you may wonder if buying a warranty is worthwhile. By analyzing the pros and cons of a home warranty as well as the overall expenses, you will be able to determine if it is reasonable and effective for you.

What Is the Typical Price for a Home Warranty?

There are a wide range of home warranty plans available through many companies. The most reputable companies usually offer plans that range in price from $250 to $600 for a one year warranty. You typically will have the opportunity to extend the warranty each year that you are in the home. While this may seem like a rather costly added expense to the overall cost of homeownership, there are many instances when home warranties have saved homeowners hundreds or thousands of dollars in repair bills. For example, if you have a serious water heater breakdown, you may be able to pay a small deductible on the warranty rather than the $600 to $1,000 or more for a new water heater to be installed.

What Are the Main Benefits of a Home Warranty?

Breakdowns and damage can occur on all components throughout your home. This includes the washing machine and dryer, the fridge and dishwasher, the HVAC system, the hot water heater, your pipes, roof and more. As a homeowner, you must find a cost-effective way to budget for unexpected repairs that may arise. Some repairs may urgently be needed. For example, a leaking hot water heater requires immediate repairs from a licensed professional if you want to minimize the extent of related water-heating damage. While you could keep a rather large reserve of funds available to make unexpected repairs on various components in your home, a home warranty gives you a more affordable way to manage the cost of repairs. For example, you may only pay a $25 or $30 deductible each time you file a claim on the warranty.

How Is a Home Warranty Different from an Insurance?

You may be thinking that a home warranty is property insurance. Your lender may have required you to purchase property insurance, so you may think that a home warranty is simply not needed. However, these two types of coverage offer different benefits. Home insurance covers repairs and replacements related to fires, theft, vandalism, natural weather events and other significant issues. Mechanical breakdowns are not covered by a home insurance policy. This is where a home warranty comes into play. A home warranty covers expenses related to mechanical breakdowns. Therefore, you can view a home warranty as an extra insurance on your property.

What Does a Home Warranty Cover?

Each home warranty company has its own policy with different benefits, coverages and prices. As you might imagine, the more affordable warranty plans cover minimal breakdowns on select items. Cheaper plans typically cover breakdowns or damage to major components, such as the electrical system, plumbing and roof. More expensive home warranty plans may also cover appliances and other components. When you are comparing prices of home warranties, ensure that you also compare the repair work covered by each plan.

What Are the Risks of a Home Warranty?

You may be wondering if there are any downsides associated with purchasing a home warranty. The most obvious downside arises when you don’t have to make any repairs. Some homeowners may view the warranty expense as wasted money during that year. There may also be years when you have repair work that is costly but that is not covered by the warranty plan you selected. While the warranty may look like wasted money, keep in mind that the warranty has provided you with peace of mind against other relevant repair issues that would have been covered by the plan. In addition, because the warranty may save you thousands of dollars in some cases, it often is more cost effective to have a warranty unused for a few years and in place when you really need it than regretting afterwards that you didn’t get one.

How Can You File a Claim?

Before you make your decision about whether to purchase a home warranty, you may want to know how easy it is to file a claim. The claims process is different for each provider. However, in many cases, you simply need to contact the warranty company at the first glance of damage to your home’s components. The warranty company will tell you which service providers you can schedule repair service with. It will be up to you to schedule a meeting with company representatives. The service provider will usually submit the invoice directly to the home warranty company for direct payment. This makes it easier for you to get things done with minimal out-of-pocket expenses.

How Can You Decide If You Should Buy a Home Warranty?

If you are trying to decide if buying a home warranty is a cost-effective solution to pursue, it is important to consider the age of your home and the condition of its components. However, remember that even newer homes can suddenly cause serious and costly issues. You also need to think about your financial ability to pay for expensive repairs, such as an HVAC or furnace replacement, roof repairs and more. Even if you have the financial ability to pay for serious repairs, you may not want to come out of pocket yourself to pay for repair services.

Many people live on a tight budget and paying for the seemingly unnecessary cost of a home warranty may seem rather frivolous at first glance. Most of the times it’s better to stay relaxed and not worry about your plumbing or appliances. Regardless of the current age of your home, buying a home warranty could certainly make sense in many cases. Take the time to learn more about the different plans available, and make an educated decision about which plan is best for you.

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