Home warranties and homeowner’s insurance are two different things. A warranty is a service contract, usually lasting one year (or two if you negotiate well). The warranty company agrees to repair or replace appliances and mechanical systems that break or fail – things like HVAC, washers, dryers, kitchen appliances, garbage disposals, and plumbing.
Home insurance, on the other hand, covers damage from sudden accidents such as storms, floods and fires. Your mortgage company probably requires you to have homeowners insurance, and that’s a good thing.
If you decide to purchase a home warranty, start by looking for a reputable company. Ask friends and neighbors for recommendations. Search company names and “warranty complaints,” and check the Better Business Bureau website. When you’ve found a reputable company that offers a warranty and covers what you want at a competitive price, it’s time to get out the magnifying glass and read every tiny word.
Here are some questions you should ask and common “loopholes” and extra charges to be aware of:
How much is the deductible? A homeowner pays a deductible for each repair or replacement. How much do you have to come up with before the warranty kicks in?
Is it covered? It’s a real bummer to have a dead AC unit. No worries! You bought the warranty. Unfortunately, the lovely woman (who seems to enjoy this part of her job) from the warranty company informs you that ACs aren’t actually covered. But everything else is, of course.
Is there a cap? Even if a warranty covers AC units, there may be a maximum amount the company will pay to repair or replace it. For instance, a new AC might cost $9,000, but the warranty might pay a max of $3,000.
How’s the quality? Look for reviews that mention the quality of service. If you can’t reach anyone, and no one returns your call, the warranty isn’t much help. Maybe there are so many broken ACs that they can’t get to yours until the end of the summer. Have fun sweating it out.
Who chooses? Somewhere in the never-ending fine print, it probably states that the warranty company chooses the contractor who will do the work and the brand of items that are replaced. The point of a business is to make money, so don’t assume you’ll get top-of-the-line assistance.
Original value or depreciated value? When a warranty company replaces a broken item, they most likely pay the depreciated value of the item and you pay the rest.
How did the damage occur? Some items may not be covered if the damage occurred under certain circumstances, such as a power surge.
Is it all fixed? Look for items that might “kind of” be covered by a warranty. For instance, the refrigerator is covered, but the ice maker isn’t. That’s a big problem—everyone knows a refrigerator without a broken ice maker is a rare and beautiful thing.
Are you buying what you already have? Before you purchase a warranty, make sure you aren’t already covered. Many appliances come with warranties and if you pay with a credit card, they often extend the coverage for 2 years or more.
Does it seem like a warranty is more trouble (and money) than it’s worth? Consider being your own warranty company and put the money into a savings account slotted for repairs. However, if a warranty will give you peace of mind – or if your seller is willing to cover one – it’s worth considering. But evaluate every word, very carefully, before signing the dotted line (one more time).