We expect our cars and appliances, and even our coffee makers and toaster ovens, to have warranties.
But what about our homes?
Wouldn’t it be smart to have some backup when a pipe bursts or the roof starts leaking?
A lot of new homeowners think so.
There are several ways to protect yourself from unexpected repair costs. A home warranty may or may not be your best option.
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It’s easy to confuse a home warranty with a homeowners insurance policy.
Both products help protect your real estate investment from unexpected losses.
Understanding the difference can help ensure you have the right kind of protection, and it’ll help you know which resource to use when something goes wrong.
A homeowners insurance policy: protects your investment when bad things that happen to your property: fire, theft, injury, hail damage — you get the idea.
A home warranty can help pay for repairs when something at your house wears out:
Here’s another way to think about it:
And cross your fingers while you check to see if your warranty will replace it.
One more key difference between homeowners insurance and a home warranty:
While helpful, a home warranty isn’t essential, unlike a homeowners insurance policy. You should always maintain adequate homeowners insurance coverage.
In fact, your mortgage lender probably won’t finance your home unless it’s adequately covered by insurance.
And if your insurance policy lapses, the lender may buy a policy for you (and send you the bill for the premiums).
Why is homeowners insurance so important? It protects you from a total loss if disaster strikes.
If a fire destroys your house, for instance, your policy could pay to rebuild. A home warranty, on the other hand, can help pay for home repairs, and not everyone needs this kind of support.
A homeowner who has enough money to pay for repairs as they come up, for example, may not need a home warranty.
But for homeowners on a tight monthly budget who worry about paying for unexpected repairs, a home warranty can offer an extra layer of security, especially considering the way one problem with a house can lead to another expensive problem.
As an example let’s say the brass fittings in your furnace’s gas manifold wear out. Not a huge deal, of course, but you’ll need a few hundred dollars to replace them.
If this expense won’t fit in your budget and you have no savings (and if it’s winter time), you may need to go without the furnace a few weeks while you get the money together.
Going without central heat could lead to frozen pipes or structural problems from contracting wood which you’d also need to pay for. So not having a few hundred dollars to fix the furnace could lead to needing hundreds more for other repairs.
If it turned out you needed an entirely new HVAC system, you’d have to come up with $8,000-$10,000 or more to pay for it.
To solve these problems, some homeowners on a tight budget may turn to credit cards or other high-interest loans, exacerbating an already precarious financial situation.
A home warranty could possibly shield you from these scenarios.
I say a home warranty “could possibly” shield you from home repair costs because it’s not a certainty.
Yes, the idea of a home warranty can give new homeowners some peace of mind.
Unfortunately, many new homeowners buy into that peace of mind without fully investigating the details about the warranty they’re buying.
When that happens…
All of this helps define the primary limitations of a home warranty: They have your back only when you’ve kept up your end of the contract — not just paying premiums, but also following the rules.
Home warranties pay for repairs (or replacements) when specifically covered systems in your home wear out.
“Systems,” though? What a broad term. Think about all the systems within a home:
Before buying a home warranty, you’ll want to know exactly which systems and appliances the warranty covers.
Most warranty companies offer a few different levels of coverage, all of which cover a specified collection of systems or appliances.
Here’s a common approach:
So how do you know which level of coverage to buy?
With apologies to speculative fiction enthusiasts, no one can predict the future — at least not consistently.
If we could, a lot of our decisions would be easier. You’d know who to date and what jobs to apply for.
You’d also know the furnace in the house you just bought won’t make it through the winter.
You could see yourself there, in the future, on the morning after Christmas maybe, shivering as you dial up the HVAC repair guy who will call the system a total loss.
If you knew about the vulnerable furnace, you’d definitely get a home warranty that would replace your furnace, right?
A systems plan or a combo plan, most likely?
Well, it turns out you can learn a lot about the future of your new home from a document you may already have paid for: a thorough home inspection.
Before you buy a house, an independent home inspector should check it out, from the top of the chimney to the pillars in the basement and everything in between.
If the inspector discovers major structural or safety issues you shouldn’t buy the house.
But, if the inspector finds an expected amount of wear and tear for the age of the home, it’s probably okay to proceed with the purchase.
You’ll be busy moving in, but be sure to hold onto that inspector’s report.
Before buying a warranty, go through the report, item by item, taking note of potential problem areas:
Some home warranty companies will want to conduct their own inspection of the systems or appliances you want to cover before entering into a contract with you. This is a separate inspection done for the purposes of your warranty company.
Another thing about choosing a level of coverage: If your new home doesn’t have a sump pump or an attic fan, for example, try not to pay for a warranty to cover those items.
This sounds like a no-brainer, but you’d be surprised what can happen when shoppers either don’t read the fine print in the warranty they’re buying or they buy a warranty before knowing the structural details of their new home.
Even the best-educated guesses about which home systems your warranty should cover can be wrong.
If that happens, you’ll need to pay out-of-pocket for a repair on top of having already paid hundreds of dollars for a home warranty that didn’t help.
Talk about a frustration.
This is exactly why a lot of people have no interest in home warranties.
Here’s my take: Like so much else in your financial life, there’s no one-size-fits-all approach to getting a home warranty.
Analyze your specific situation. Become the expert on what you need. Then you’ll have a pretty good idea of whether you need a warranty.
While I can’t decide for you whether to get a home warranty, I do have some thoughts about when a warranty makes less sense:
On the other hand, some situations would make me lean toward getting a warranty:
The most important thing now will be to make sure your new warranty matches you and your home.
The best warranty will address the home systems you’re most worried about, will most likely come through when you need it, and will fit within your budget.
Finding such a warranty can be a challenge.
Unlike electronics or small appliances, you can’t take systems in your home back to the store or have the manufacturer simply ship you a new one.
You probably need a specific part repaired or replaced to get your system up and running again.
So here’s how home warranties tend to work:
It seems simple enough, but sometimes things don’t go as planned. Sometimes you discover (or your customer service rep discovers) language in the fine print excluding from coverage the exact repair you need.
Other times the warranty company may not be able to find a technician to fix your problem.
In that case, you have to find someone, pay for the fix, then try to get reimbursed.
There’s a lot of potential for frustration.
Buying a house opens the floodgates for home-related product offers.
You’ll soon have a mailbox full of ads for mortgage insurance, pest control contracts, lawn care companies, and, yes, home warranty offers.
For the most part, I’d ignore all of those and do some independent research of your own.
See which companies operate in your state. Check out their online reviews.
But don’t stop there:
Few home-related products incite more anger than a home warranty that would not pay for a necessary repair.
Look no further than online forums which are filled with 1-star reviews, horror stories about loopholes allowing warranty companies to avoid payment, and tales of unsympathetic customer service reps.
Of course, people who had bad experiences post more reviews than people who felt like everything went OK. Such is the nature of online reviews.
They’re helpful, but not exactly representative of the entire spectrum of customer experience.
So you’ll need to mix in some research of your own, which means reading the fine print and calling to ask questions before signing a contract.
Once you’ve narrowed down some companies to consider, ask for some detailed information from each company on your list.
A company should be willing to give you a copy of the contract with all its fine print so you’ll know exactly what you’re agreeing to.
If you have trouble getting details from a company, move along to someone else. A company that won’t cooperate with potential customers may be even less helpful once you’ve signed up.
Be sure you find out:
We expect to be happy customers when shopping for books, shoes, lattes, and smartphones. If we’re not happy, we’d probably take the merchandise back.
Yet when shopping for a home warranty, shoppers may hope only for a product that doesn’t make them feel angry or cheated.
It’s a low bar, so we sought to raise it. We looked for companies that would offer the flexibility and reliability you’d need to build a warranty matching your home’s needs as we’ve been discussing.
To save time, we didn’t consider companies unless they had a standard contract posted on their site or quickly made available after a phone call. (We also didn’t consider companies without an online sample contract because a potential customer shouldn’t have to call and ask for this kind of standard information.)
We compared contracts and assessed the pros and cons, but we didn’t actually buy or try to file a claim with a warranty.
Every situation is different, but here’s the deal: If I were buying a new home and needed a warranty, these “best companies” would be where I’d start.
All our “best home warranty” companies hold up well to scrutiny based on their contract, terms of service, spending caps, and customer service experience.
So why put American Home Shield at the top of the list?
Because of its “build your own” warranty option.
Remember how we talked earlier about making sure your warranty covers specific areas of concern in your new home?
American Home Shield’s customizable approach breathes new life into this goal. You can choose up to 10 systems or appliances to be included in your warranty.
Many companies’ preset levels of coverage cannot be customized, making it harder to match a warranty to your exact needs.
For example, what if you could get by with a cheaper appliance-only plan except for your concern over the older pipes in the basement? In that case, you’d usually have two traditional choices:
American Home Shield’s “build your own” warranty introduces a third choice: a plan allowing you to include only what you need.
Let’s be clear: It’s not truly a la carte. You can’t pay a lower price if you choose only five systems or appliances to cover, for example. But by mixing elements of an appliance plan and a systems plan, you can build a more precise warranty.
And customization isn’t American Home Shield’s only strength.
Its payout caps exceed what many customers have come to expect from a warranty. The warranty will pay up to $3,000 for most systems it covers.
The company offers an easy-to-understand contract by industry standards and has an easy-to-use Web site for online claims filing and tracking.
American Home Shield serves customers in all states (except Alaska) and has an adequate network of technicians in most cities.
Monthly costs start at $35 for a basic plan and about $40 for the build-your-own plan.
While TotalProtect doesn’t offer a customizable warranty, its generous caps on repair costs got our attention.
In fact, TotalProtect does not have any caps at all on many major categories such as kitchen appliances.
So if you ran into a string of bad luck and three major appliances gave out the first year, you could still avoid paying out of pocket for repairs or replacements.
Other strength of TotalProtect:
TotalProtect’s most comprehensive warranty usually costs about $5 more than American Home Shield’s in most markets, which may be worth it if you like the 180-day guarantee and the more extensive network of technicians.
Sears Home Warranty also has a 180-day free recall period and a high cap on expenses.
Except for repairs on the most expensive line of appliances — a professional, high-capacity clothes washer, for example — Sears will pay up to $10,000 on repairs.
What gets Sears onto our list is its extra features. Warranty customers can get a free HVAC check every year, which can prevent breakdowns at awkward times such as holidays or during extreme weather.
Sears Home Warranty customers can also get discounts on oil changes and tire rotations at Sears Auto Centers. This bonus is available mainly on the East Coast, Michigan, and California.
Sears still has some significant name recognition around the country and an extensive team of qualified home repair technicians. Its warranties also tend to cost more, plan for plan, than American Home Shield’s.
America’s 1st Choice Home Warranty allows for some customization that caught our attention.
You can’t simply build your own plan as with American Home Shield, but you can add on specific systems or appliances to a preset plan. This could help avoid a full upgrade to the next highest plan.
Caps for payouts fall below the previous companies on the list, but they’re still higher than many other plans. Typically, America’s 1st Choice would cap appliance repairs at $1,500 and systems repairs at $2,000.
But the premiums also run a little lower, and the warranty features a uniform fee of $60 for service calls. Other plans have different fees for different kinds of service calls that may range all the way up to $125.
America’s 1st Choice has been in business for only about a decade, but so far it seems to be a solid choice, especially if you’re looking for a reliable but lower-cost option.
This combination of solidity and value placed it on our list.
Choice Home Warranty makes this list because of its flexibility.
Like America’s 1st Choice, Choice Home Warranty allows customers to adapt preset coverage levels to make them fit their specific needs.
Choice Home Warranty does not cap overall annual expenses but it does impose a $1,500 cap on each individual appliance or system within the warranty.
You can find a plan for about $30 a month, and the warranty has a uniform $60 fee per service call.
We also like Choice’s always-open customer service. You can call any time of day, any day of the week, even on holidays. We also like the online claims process.
Choice’s per-system or appliance caps are lower than many of its competitors, and we’re not huge fans of that, but premium costs and service costs are also lower.
The combination of flexibility and value helped secure Choice Home Warranty a place on this list.
I’ve stressed it so many times now, but it’s worth saying again: Your home warranty should match your home.
This need for flexibility helped propel several companies onto the above list of Five Best Home Warranty Companies.
Several other companies also provide reliable coverage.
I’ll include them here as honorable mentions:
A warranty supporting the systems or appliances you’re most concerned about in your home can protect your monthly budget from big hits.
Since you’re the expert on your home, you’ll know what systems or appliances need the most support. (If you’re just moving in, check that home inspector’s report.)
You probably aren’t an expert on the home warranty contract you’re looking over, though.
Before signing it, read it thoroughly. Become an expert. Take note of what the contract requires of you, the homeowner.
If you don’t hold up your end of the bargain, or if you’ve exceeded the plan’s spending caps, the warranty won’t help when you’re facing a huge repair bill. This is the source of some, but not all, of the frustration which customers have with home warranties.
If you already know you won’t do what the contract requires, such as annual check-ups on all the covered systems and appliances, don’t sign it.
You’d be better off saving those premiums toward repairs or finding a warranty with fewer requirements. More importantly, though, when you become an expert on the contract you can use it to your advantage.
If a customer service rep thinks the repair you need isn’t covered, you’ll know better.
You’ll know what questions to ask and what answers to expect.
At that point, you’ll know you have a home warranty in place as a line of defense against out-of-control and unexpected home repair costs.
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