As we do with most of our blogs, I will give you the answer right away. “Is a home warranty a good idea?” It depends.
I know it’s not exactly the answer you were looking for, but it’s the truth. Not all home warranties are created equal. Some are very expensive. Some don’t cover everything. Some are priced well and have great coverage. How do you know if a home warranty is good for you? To answer that we will arm you with three home warranty evaluation processes.
Before we dive in, let’s first define what exactly a home warranty is. Wikipedia defines it as “a contract that agrees to provide a homeowner with discounted repair and replacement services.” Investopedia goes on further by saying a home warranty is “a safety net against expensive, unforeseen repairs.”
Essentially it is a contract or “insurance” to help cover the costs of unforseen, expensive repairs to your home. Initially, this sounds like a great idea. Who wouldn’t want unforeseen, expensive repairs to be covered? But how easy is it to understand the warranty contract? What does the home warranty cover? And what is the cost for compared to what is covered? These are the questions you should ask when determining if a home warranty is good for you.
1. How easy is it to understand the home warranty contract?
A home warranty does not cover liability. They are rarely set up to cover things that–in a worst case scenario–could potentially be part of litigation or a court case. Home warranties should be simple:
- List of stuff that if it breaks it will get covered
- This is what the coverage looks like (what gets paid for and what doesn’t)
- This is a list of stuff that is not covered or is specifically excluded
If you are considering a home warranty that is not easy to understand, it’s a BIG red flag. It should not be pages and pages of documents with legalees.
2. What does the Home Warranty cover?
Many home warranties get a bad rap because if something breaks and you attempt to use the warranty, you find out that what you need coverage for is not covered. Aside from the home warranty being easy to understand, you need to see if the specific things covered are what you actually need coverage for and are not specifically excluded.
Here is an example: In Arizona it is important to have a working air conditioner. If your air conditioner breaks in the middle of the summer, it can make life miserable and potentially dangerous. What happens if the air conditioner breaks? Do you have money to pay for a new one? If not, do you have a home warranty in place to repair or replace your air conditioner?
Home warranties can cover a range of items from heating and cooling, electrical systems, plumbing, kitchen and laundry appliances, garage systems, and more. But many of these things can also be excluded. You must understand the needs for your situation and if the home warranty will meet these needs.
Do you have a home with older plumbing? You might want to make sure the plumbing is covered in the home warranty. Did you just get brand new kitchen appliances? You probably don’t need coverage since the likelihood of a new item breaking down is small and if the item is likely covered under the manufacturer warranty.
Note what items may break down soon, add items you absolutely want coverage for, and look to see if the home warranty covers the list.
3. What is the cost for the items being covered?
Let’s say you bought a house that has an old air conditioning unit. As part of the home buying process you got an inspection. The inspector lets you know that the air conditioning unit works, but it is on its last leg. Not a huge deal, but something that needs to be addressed. Your real estate agent introduces you to a home warranty plan that only covers the air conditioning unit. This seems like good news until you learn the cost for the home warranty is $7000. This is not ideal because the average cost for a new AC unit is $5644. The cost to replace the AC unit on your own is less than the home warranty itself.
This is an extreme example. Home warranty plans typically cost much less than $7000 and usually cover more than just the AC unit. But the example helps you understand how to compare the cost of the home warranty versus the cost of replacing the items on your own.
Is a home warranty a good idea? This depends. Make sure the home warranty you purchase is easy to understand, covers the items you need coverage for, and is priced in a way that helps you financially.
At Stewardship, we are home loan, insurance, and investment advisors that serve people with wisdom and love. One of the many items our insurance advisors help with is home warranties! If you are interested in talking with us about a home warranty, schedule an appointment below.
