Do you know what goes into a home warranty?
While it can provide you with a little peace of mind, you need to understand
exactly how home warranties work before you invest in one.
The
idea of a home warranty can sound great. According to the National Association
of Realtors, a home warranty is defined as, “a service contract, normally for
one year, which helps protect home owners against the cost of unexpected
covered repairs or replacement on their major systems and appliances that break
down due to normal wear and tear. Coverage is for systems and appliances in
good working order at the start of the contract.”
It
sounds simple: You insure critical systems in the home, and should something go
wrong with those systems, the cost of repairs is largely covered by the
insurance company. And it’s true, a home warranty can give you exceptional
value, especially in the first year of home ownership, when you’re still
getting a feel for the overall health and maintenance status of your home.
Sellers
often offer a home warranty to allay buyers’ concerns over their first year in
the home. In fact, in states where foreclosures are common, home warranties are
practically the norm. If a buyer likes two homes about the same, a warranty can
be a competitive advantage.
But
as with all insurance policies, the fine print matters. When researching home
warranties, you must be certain of what the policy covers, and how the
insurance company honors claims. For big ticket items like heating and cooling
systems, the home warranty can be a massive cost savings, often reducing
out-of-pocket expenses to less than 10% of the total. However, with smaller
appliances and simple repairs, the claim can cost you as much as the repair
would on its own. Plus, it’s vital to know if the warranty will replace versus
repair aging appliances. (Many companies will try and repair an old stove or refrigerator
rather than replace the unit with a more energy efficient model.)
You
should also be aware when a home warranty isn’t required on certain home
features. For instance, if you have a dishwasher or hot water heater that is
already under manufacturer’s warranty, the home warranty coverage may be
superfluous. If you have major systems with considerable age on them, though,
the warranty can be worth the investment.
Be
aware of the terms of the warranty when it comes to maintenance and neglect.
Occasionally home warranty companies will try to get out of paying for repairs
or replacement by claiming you haven’t kept up with routine maintenance issues.
To ensure you don’t get caught out on these technicalities, understand how the
insurance company justifies these claims.
Insurance is always a complex business, but don’t shy away from
investigating a home warranty if you’d like some protection from major,
catastrophic repairs. It all comes down to the terms of the contract, and with
a little diligence you can get the coverage you need. If you have any questions
about where to get home warranty quotes, get in touch with a REALTOR® today.
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