Home warranties are designed to protect you against costly and unexpected repairs of home systems and appliances. But are they worth it? After all, if you don’t use them, you just let money go every month while many newer appliances will still have warranties from the manufacturer.
While a home warranty isn’t for everyone, they certainly make sense in certain scenarios.
Understanding the Risk
Before you can make a decision about whether or not you should get a home warranty, you need to understand the potential financial risks involved in being a homeowner. By starting with some real numbers, you can see just how much a problem could cost you.
Consider these costs to repair or replace a home system or appliance:
- $355-$1,842 to replace small sections of plumbing
- $1,500-$15,000+ to replace entire home plumbing
- $100-$150 to replace electrical outlet or switch
- $4,000-$10,000 to rewire a house
- $200-$330 to repair a refrigerator on average
- $150-$300 to repair washing machine
When it comes to appliances, it depends on what is wrong and whether or not you should just replace the whole unit. Depending on the appliance’s features, a new refrigerator or washer could cost thousands of dollars.
Certainly, if you only have small, occasional repairs, it might not be worth it to pay for an annual home warranty. After all, the cost of the warranty is $300-$600 a year plus there is a trade service fee due at every service call. If you only have a repair that cost $200 in the year, the home warranty is not worth the cost.
But if repairs become major, you could benefit from the home warranty company. Imagine needing a new electrical system. Having just paid the annual fee (assume a high $600) and the trade service fee of $75-$125, you could save thousands of dollars in repairs and a new system.
If your home is equipped with new appliances, you may have a manufacturer’s warranty that cover each specific appliance. Manufacturer’s warranties are often good for one year after purchase. The warranty covers the replacement of parts that match the exact brand and model of the appliance and would include the costs of parts and labor.
To make sure that you can make a claim on the warranty, you’ll need to understand:
- Keep the receipt
- Register the appliance
- Understand the coverage details since cosmetic issues, installation issues, and misuse are excluded from coverage
- Check what has extended coverage beyond the year
- Use only an authorized repair company to fix the machine
Essentially, the appliance warranty is protection against defects in manufacturing and nothing more. Wear and tear is not covered under most appliance’s manufacturer’s warranty.
Knowing the limitations of the manufacturer’s warranty, it’s a good idea to survey how old the appliances are in the home and whether or not they would be covered by the manufacturer. Most people buy a home that has older appliances where the manufacturer’s warranty has already expired.
Because a home warranty covers items beyond the one-year span and will cover repairs due to normal wear and tear, they can be very beneficial to homeowners.
The Home DIYer
If you’re handy, you might be thinking that you don’t need or want a home warranty. If you’re the person who can handle most home issues, you might be able to handle most home repairs on your own. This can include common plumbing and electrical problems.
While the DIYer is certainly at an advantage when it comes to dealing with pesky home repairs without a warranty, it’s important to understand your limitations. While you might be well-versed with home systems, you might not be comfortable taking apart a washing machine to troubleshoot a problem with the drum.
In cases like this, a home warranty company that allows you to select only an appliance warranty might be a good bet. You can save money and tackle home systems on your own but can also rely on an expert to come and fix an appliance if needed. It can also save you downtime when something goes wrong – a quick call to make a claim often has a service repairman to your home within 24-48 hours. While you might be able to fix the problem, do you have the time to fix it quickly?
Most people buy a home warranty as a type of insurance policy against costly home repairs. You can budget a certain amount every month and have a limitation as to what your out-of-pocket costs will be. Someone who is a good saver who has the cash reserves to deal with home issues might not need the home warranty. They may still find comfort knowing there are limits to costs but realize that they are spending more on the home warranty than they would if they paid for repairs on their own.
Understanding Home Warranty Caps
While the home warranty is designed to help prevent costly repairs from being out-of-pocket for homeowners, it isn’t an end-all solution in some cases. Home warranties often cap or limit the amount spent on a specific claim. For example, a warranty company might limit the amount of an appliance repair or replacement to $2,000. This could leave someone in a bind if their refrigerator needs to be replaced and a similar model is $3,400. The same is true for home systems. There may be a cap to replacing an electrical system of $10,000. If your electrician says it will cost $15,000, you either have to limit the repair or come up with the extra cash.
For those with extremely old homes where there are outdated (not current building codes) systems, you may be better off planning to replace the systems completely. A home warranty might be able to help, but might not be conducive to the timing of replacing outdated systems.
Consider Time Saving Factors
We already mentioned that a DIYer might be able to do the job, but might not have the time to do it immediately. Even those with the cash to call a professional, the home warranty company can serve as a big time saver. Home warranty companies use vetted licensed service technicians.
This can save you the time of finding a plumbing recommendation, getting a quote, and scheduling a visit. If you don’t have a list of reliable service providers, you might feel more confident having a home warranty on your side.
At the end of the day, each homeowner has to assess his financial or physical ability to pay for the costs of repairs on his own to forgo a home warranty. Those without the means to simply take care of house problems will reap the many benefits of a home warranty that include limited out-of-pocket costs in most scenarios, professional service, and expedited appointments.