Can a Home Warranty Save You Money?
, by Rob Kaufman
Before talking about the pros, cons and potential money savings a home warranty can offer, it's a good idea to know what a home warranty actually is.
A home warranty is a contract (usually a one-year term) that helps cover the cost for the repair or replacement of many home systems and appliances. There's quite a variety of home warranties available today, which is why researching different companies and learning about what they offer is an important part of the home warranty selection process.
What does a home warranty cover?
Depending on the type of plan you choose, a home warranty can cover systems only, appliances only, systems and appliances, even pools, spas and water lines. A partial list of covered items might include:
Electrical, Plumbing, A/C and Heating
Clothes washer and dryer
Inside gas line
Inside sewer line
The items covered under a home warranty are in direct relation to two primary costs associated with a home warranty: the monthly premium and service call fee. The monthly premium is the amount paid each month in order to be "protected" by the contract. The more items you cover, the higher your monthly premium. The service call fee is the "deductible" paid to the service provider who comes to repair or replace the item. Typically, the higher the service call fee, the lower the monthly premium. In terms that might sound more familiar, a home warranty is similar to health insurance in the sense of: the higher the deductible, the lower the monthly premium.
How does a home warranty work?
Let's say your refrigerator conks out... just stops working out of the blue. Without a home warranty, you'd have to search for someone to come to your home, have them diagnose the issue and then repair it - at the repairman's full cost. Or, if it's determined that the fridge can't be repaired, you'll have to shop around and buy a new one.
However, if you have a home warranty and your refrigerator is covered, you call the home warranty company (or go to their website to place a claim). They usually have a network of technicians and will send one of them to come to your home to determine the issue. You pay the service call fee to the technician and whether the fridge needs to be repaired or replaced, you shouldn't have to pay another dime.
The objective of a home warranty is to save consumers a lot of time, frustration and money. Are these objectives always met? It all depends on the home warranty company you choose (how reputable they are) and the plan you select (including the details written in "small type" that are part of that plan).
Who should get a home warranty?
When considering whether or not to purchase a home warranty, there are a few things to consider:
Free time . Between work and your personal life, do you have enough time to manage every system or appliance breakdown that occurs in your home? A NO to this question means a home warranty could work well for your lifestyle.
Dispensable cash . If your refrigerator or clothes washer broke down and couldn't be repaired, do you have cash sitting around to buy a new one? A NO here could mean that a home warranty might be the perfect way to keep costs under control and save you from spending money you don't have.
Age of systems and appliances . How old are the systems and appliances in your home? If they're on their last legs, would having a home warranty help out? A YES to this means it might be time to start looking for a good home warranty plan before things start to go wrong.
Your current handyman. If you already have someone you trust to fix things around your home and he's not part of the home warranty company's network, you won't be able to use his services and benefits from the home warranty plan. Are you okay with that? A NO to this question means you might want to find out the list of providers a home warranty company uses before signing on the dotted line.
Pre-existing conditions. Some home warranties cover these types of conditions, some don't. However, all home warranties require that covered items must be in good working condition before coverage starts. Are your systems and appliances working well right now? If you answered YES and are still interested in a home warranty, you might want to start researching companies before something goes awry with one of your favorite appliances.
There are people talking about home warranties (and a lot more) at the myFICO Forum. The more you hear what others have to say, the better the possibility of making the right decision.