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My A/C unit died over the weekend. There is nothing worse than walking into your house and realizing that it is 83 degrees at 10:00 AM. I live in Phoenix and in the middle of July, it is HOT around here.
It turns out we were low on fluid. So $350 dollars later we were back in business. I think I need to switch jobs – I’d like to make that much in one hour.
I got lucky this time, but it made me realize that my home is now five years old and it may be time to consider a home warranty.
What is a Home Warranty?
A home warranty is not standard insurance. You are contracting with an independent company to cover the cost of repairs on particular portions of your home. You pay a monthly or annual fee and a small service call fee whenever you utilize their service.
Typically coverage is broken into two areas:
Appliance Coverage which covers your basic appliances like your refrigerator, dishwasher, stove and washer and dryer
System Coverage which covers your plumbing, air conditioning, electrical systems and other systems found within a typical residence.
You can purchase each type of coverage individually or together. Most warranty companies will also allow you to choose optional coverage for stuff like pool pumps, R/O water units. and extra appliances.
My experience with a home warranty
When I was 26 I purchased my first home. At the time I was single and followed the advice of my realtor and purchased a cheap home warranty. I kept a home warranty on that home for the next 10 years.
I can’t remember the exact pricing, but I paid an average of $350 each year for my warranty. Each year, I would watch my repairs and do a rough estimate of my ROI (return on investment) for the warranty. Some years I came out ahead, other years the warranty company definitely won.
Overall, when I added in the service fees I think I probably lost between $500-1,000.
However, this doesn’t take into account the piece of mind I got from the warranty. During most of these 10 years, I was single and proud and hated asking for help. Most importantly, I don’t have a mechanical bone in my body.
I managed to replace my garbage disposal once, but that experience scared me for life and convinced me I needed to keep my warranty.
I loved knowing I could call the home warranty service. They were responsible for vetting the service technicians, they were responsible for paying the bills (I just had my service fee), they were responsible for any follow-up if the work didn’t meet expectations.
I literally called, they would set up the appointments and all I had to do was be there when the technician arrived.
It was particularly handy when I became a landlord. I had good renters, but it seemed like I was constantly having plumbing and A/C issues. The home warranty was worth every penny during those years.
The home warranty was worth every penny during those years.
My home was older and I had enough repair work to make the warranty mostly worthwhile financially. When combined with my lack of mechanical knowledge having a home warranty was a win-win for me.
I’m in a different situation now. My husband is very handy and can fix pretty much anything (of course that is all time dependent). The home is new and I know the maintenance record on everything.
Do I really need to pay for peace of mind?
I did a quick price quote through my old company and the basic cost is $636 annually plus a $69 serviced fee. If I had a warranty in place, I would have paid $69 and saved the additional $281 which means that my warranty would have cost me $355. So if I have one additional repair this year, the cost will be worth it.
Or course at this point it is all about statistical probability. What are the chances that something else major will happen? Isn’t that always the question?
The Negative Side of Home Warranties
Home warranties don’t solve all your home maintenance problems. You are still bound by a contract and one of the little-known provision is that a warranty company can deny payment if the system or appliance was not properly maintained.
This can be a major issue since the warranty company is often the one making the determination.
This is particularly problematic if you purchase a used home with an older A/C unit and are unfamiliar with the previous owners lack of maintenance. In our case, I have the maintenance records on our A/C unit, but if they don’t meet the standards of care then the warranty company may deny the charge.
Warranty companies also have a rather long list of exclusions and will often limit the amount of coverage they will offer for a particular repair on an annual basis.
The contract is written by the home warranty company, so you can guarantee that it is tipped in their favor and has multiple loopholes.
The fact that the warranty company is responsible for finding a contractor is a double edge sword. It is nice to have someone else doing the research, but you are also stuck using the contractor chosen by the warranty company.
In theory, the warranty company has contracted with good reputable companies, but there are always going to be contractors who slip through the cracks and you are the one stuck dealing with the issues they may cause.
Based on my research I was unable to find federal statutes that mandate certain behavior by warranty companies, which means you are left to deal with individual state regulations.
I read a lot of very negative posts while reviewing home warranty companies. There is a lot of consumers dissatisfaction in this industry and I read some horrible stories while researching this article.
It sounds like there are a lot of disreputable companies selling warranties – so buyers beware!
Will I Purchase a Warranty?
Honestly, at this point, I’m not sure. I’m waiting for quotes from two additional companies. Once, I’ve got the quotes, I’ll make a final decision.
I love the convenience of having someone I know and mostly trust to call whenever something happens (particularly on the weekends when my husband is off with his boy scouts).
If we do choose to get a warranty I will most likely get the system coverage only. We have a fully funded emergency fund that will easily cover an appliance repair. My biggest concerns are related to our A/C unit (hello Phoenix sun) and plumbing (Phoenix has very, very hard mineral water). Replacing an A/C unit or fixing a major plumbing issue can be very pricey. System only coverage will save approximately $125 annually.
Even at the lower price, I’m still not sure it is worth it on a home that is only 5 years old.
Before making your decision I recommend the following steps:
1. Do your research.
Get multiple price quotes and review each company thoroughly. I emailed a few realtors to get their recommendation and also spoke with a plumber. I’m planning to call an A/C company as well but haven’t had time yet. I want to actually speak with people who deal with warranty companies regularly.
2. READ THE CONTRACT
I know, reading contracts is the most boring thing known to man, but if you are going to spend that much money, you need to know what coverage you are getting.
Review the exclusions carefully – particularly ones related to the high dollar items.
3. Review the condition of your current home.
What appliances are on their last legs? Are your appliances and systems still covered under manufacturers warranties? Do you have extenuating circumstances like high heat or extreme cold? Do you have the resources (ie emergency fund) to cover a large repair?
This is where reading your contract makes a difference. If you know potential problem issues then you’ll want to make sure they are covered.
4. Check your home owners insurance policy
Normal appliances won’t be covered, but depending on the reason for the system failure your home policy may cover the repair. If your policy will cover certain types of flood damage then you may not need plumbing coverage. Obviously, this is a rare situation, but why pay for double coverage.
5. Don’t trust the word of the salesman
Ask specific questions about the coverage you need and make sure that what the salesman promises is actually covered in the warranty.
Is a Home Warranty Right for You?
Before making a decision on a home warranty take the time to assess your individual financial situation and home circumstances. If you are strapped for cash and know your A/C unit is on its last leg then you may want to consider spending the money. If your home is relatively new then it is most likely an unnecessary expense.
As a final thought, my accounting side has to mention that there is a reason home warranty companies are in business. They are obviously making money which means the numbers and contracts are written in their favor.
Never under-estimate a companies ability to write a contract in their favor.
***Editorial note: It has been two years since I wrote this post. I chose not to purchase the warranty. Maybe I’ve just gotten lucky, but so far any home repairs I’ve had to make either wouldn’t have been covered under a warranty or would have cost less than the cost of the warranty.
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