Buying a house can be a terrifying ordeal. At any point of the closing process, something could go awry: the seller backs out, the inspection finds something that needs intensive repair, or the bank may not approve your mortgage application. Once all is said and done and the deed is signed, surely that means that you can finally relax in your brand new home, right? Well, maybe not.
The last thing you want to do right after move-in is deal with faulty appliances or unexpected problems with mechanical systems like the heating and cooling. That’s where a home warranty might be able to help. A home warranty is like a type of insurance policy that can cover large appliances or other parts of your home for the first year or two after purchase. For a small monthly premium, you’re given peace of mind that something like a leaky fridge won’t break your bank.
As with all insurance policies, home warranties are only worth it if they fit your budget, cover what you need them to cover, and have the right conditions for you. Here’s how you can make sure that you’re getting the best home warranty for your money:
1. Differentiate between home warranties and homeowners' insurance.
First things first: make sure that it’s a home warranty you’re looking for and not homeowners’ insurance. Homeowners’ insurance is geared towards unexpected damage that your home itself may be subject to, such as flood, fire, or tornado damage. These policies are crucial for protecting your financial stake in your home, but they ultimately have a very different purpose from home warranties.
Home warranties differ from policy to policy, but generally they are designed to cover breakdowns in your house’s key systems: water, heating, air conditioning, electrical wiring, and plumbing. Most home warranties also include provisions for large household appliances such as washing machines, dryers, and refrigerators. Some warranties may also include coverage of major household luxuries such as pool-related systems.
While homeowners’ insurance may cover weather-related damage to many of these appliances and systems, it will generally not cover any internal issues they suffer from. Anyone who’s ever owned a home before knows that systems like heating or plumbing don’t need bad weather to have plenty of problems all on their own. Home warranties and homeowners’ insurance cover very different things, but together they can safeguard you against many of the unexpected pitfalls of home ownership.
2. Look at the coverage being offered.
Once you’ve determined that it’s a home warranty you’re really after, you need to determine exactly what you want it to cover. In addition to the items listed above, home warranties can also cover dishwashers, garbage disposal, ovens, stoves, septic tanks, bathtubs, showers, ductwork, and more — what among those do you want covered? What do you think you could go without?
Unfortunately, there are no simple answers here. If you’ve been a homeowner before, think back to experience getting repairs or new appliances. If there were any that were particularly thorny for your budget, you’ll want to make sure that your home warranty covers them. If you know how to repair an air conditioner but gas ovens are completely alien to you, you might want to cover the latter and not the former. Most of this will come down to some kind of cost-benefit analysis. You’ll need to do some research to see what the likelihood of certain systems or appliances breaking down, check the cost of repairs, and weigh that against the cost of the warranty itself.
Moreover, you need to take stock of how long the warranty itself lasts. Most home warranties are designed for those who just purchased a home, last one year, and have the option for renewal. Warranties for existing homeowners or those that last more than two years generally have scheduled premium increases in order to accommodate for the increased likelihood of repairs. While a certain warranty might seem like a bargain at first, make sure that you’re not signing up for something that gets precipitously more expensive as time goes on.
3. Shop around.
This point may seem obvious, but it’s surprisingly easy to overlook. Different insurers offer different home warranties at different prices — you know this already, so of course you’re going to opt for the best deal. Unfortunately, there’s more to it than that with home warranties.
When something in your home is in need of repair or replacement, the firm that provides your warranty usually has final say over who does the repair or what the appliance is replaced with. Before you sign on to a certain policy, see if they have a list on hand of who they generally call on to do these repairs. Some may offer you some freedom in choosing who does repairs and replacements, while others may require that you go with certain firms — some of which you may not like. If you aren’t aware of this ahead of time, you might not realize it until too late. This may also impact when you’re refinancing your home.
4. Look at the fine print.
As with all policies, the fine print is where you’re going to find out exactly how effective your warranty really is. Some warranties will automatically exclude coverage for appliances that are too old, while others may require certain systems to have been repaired a minimum number of times before they’re eligible for replacement.
You and the issuer of your warranty may have different conceptions of what comprises your plumbing system or what constitutes a “working” air conditioning unit — these are all things you need to check on ahead of time in the details of the warranty itself. Much of what’s in the fine print will be up for negotiation, but only if you know about it before you sign on the dotted line.
Home warranties can be a great value when you get the right for you. By utilizing all of these tips, you can guarantee that you’re getting the most bang for your buck with your warranty.
