First things first: a home warranty is not the same thing as homeowners insurance. Home owners insurance covers major perils such as fires, hail, property crimes, and certain types of water damage that could affect the entire structure and/or the homeowner’s personal possessions. A homeowners insurance policy can protect your home against damages that occur to the house itself and your belongings inside. Homeowners coverage can also protect your property, some of your personal possessions and you. For instance, if something unexpected occurs, such as a fire or burglary, homeowners insurance will help pay for destruction and losses. In addition, a home insurance policy may provide liability coverage for accidents that occur on your property (including both property damage and bodily injuries incurred by visiting guests) and may even cover certain accidents that occur off your property.
A home warranty isn’t insurance – it is a contract between you and a home warranty company that provides for discounted repair and replacement service on a home’s major components, such as the furnace, air conditioning, plumbing, and electrical systems. A home warranty may also cover major appliances, such as washers and dryers, refrigerators, and swimming pools.
Home warranty companies have agreements with approved local service providers. When something that is covered by a home warranty breaks, you will call the home warranty company, which sends one of its service providers to examine the problem. If the provider determines that the needed repair or replacement is covered by the warranty, they complete the work. You pay a small service fee, plus the money already spent to purchase the warranty.
A home warranty costs several hundred dollars a year depending on any extra coverage you may include. In addition to that initial charge you will pay $75-125 each time the service provider visits.
Though home warranties aren’t expensive compared to the cost of repairing or replacing most of a home’s important components there may be many years when nothing at all breaks down or wears out in the home. That money could be put into an emergency fund for making the same repairs and replacements that the home warranty would cover..
Home warranties do eliminate the need to find a contractor when something breaks. However, they also eliminate the freedom to choose your own independent contractor if you want the warranty to pay for the repair or replacement. If you don’t like the contractor or the work that’s done, you’re stuck. Also you may have little or no say in the model or brand of a replacement component, though the warranty contract should provide for a similar- or equivalent-quality replacement.
So, bottom line, a home warranty is not a perfect solution. Read the fine print in the home warranty contract and carefully consider whether the warranty is likely to pay off.
