Your homeowners insurance will cover the damage if a tree falls on the roof or the house floods, but what if the air conditioner goes on the fritz in the middle of a heat wave or the washing machine breaks during the spin cycle? A home warranty might cover the cost.
Home warranties were not meant to replace homeowners insurance. The optional coverage was designed to cover home systems such as plumbing and electrical systems, heating and cooling systems, and home appliances such as the refrigerator, stove, washer and dryer, that are excluded by traditional homeowners insurance policies.
These warranties are generally purchased during a real estate transaction: Research conducted by home warranty provider American Home Shield found that homes with protection plans were on the market for 11 fewer days and sold for $2,300 more than homes without warranties.
The bottom lines is this: Sellers offer warranties to make their listings more attractive and to give buyers peace of mind. But if you’re a buyer who wants to protect against unexpected expenses if their new home has older systems or appliances? There may be better options, as basic home warranty coverage costs between $300 and $600 per year.
Here are five things to consider before handing over your credit card:
1. Do I need a home warranty?
On new construction, most builders offer warranties; new appliances will also be covered by warranties. You may also get extended warranties on appliances and other in-home systems that are purchased with your credit card. In these cases, a separate home warranty might be unnecessary. Warranties may be a better bet on older homes where systems and appliances are more likely to break.
2. What does a home warranty cover?
Different companies will offer different coverage but, in general, home warranties cover appliances, heating and cooling and plumbing and electrical systems, including electrical panels, wiring, furnaces and air-conditioning units. Claims can be denied if problems are considered pre-existing, caused by incorrect installation or are the result of poor maintenance. Understanding what a warranty covers can help avoid surprise claim rejections.
3. How much do home warranties cost?
In addition to the annual premiums, most warranties also have deductibles, which can range from $50 to $100 per claim. Covering extras like a swimming pool or hot tub could require paying additional fees to upgrade a traditional home warranty.
4. Who is offering the policy?
Countless companies sell home warranties. Before choosing one, check the Better Business Bureau, the National Association of Insurance Commissioners and National Association of Attorneys General to see if other consumers have lodged complaints. You don’t want to be working with an unscrupulous warranty company while dealing with a major home repair.
5. Have you read the fine print?
Home warranty companies often set out very specific terms and conditions for repairs. You may have to use their contractors or settle for having an old or outdated item repaired instead of replaced. In addition to getting information about the cost and coverage, read the fine print to learn how the coverage is put into action.
6. Are there other options?
Appliance insurance like Farm Bureau’s Residential Equipment Breakdown (REB) insurance offers a cheaper alternative to home warranties — $25 compared to up to $600 a year. REB’s special coverage includes TV, computer, stereo, air conditioner, furnace, water heater, appliances and other electrical home systems, or just about anything that you can plug in.
Purchasing a home warranty could protect you against unexpected — and costly — home repairs, but it’s important to understand the finer points of these warranties before making a purchase.
Questions? Connect with your Farm Bureau agent to learn more about homeowners insurance and what exactly it covers.