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Buy That Home Warranty

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This is a Devil's Advocate post.

This DA suggestion comes by way of Foobarista, whose neighbor recently had their furnace fixed “for free.” A home warranty is a warranty on the appliances and mechanical systems of your home, such as a furnace, and is most often offered for the first few years of a home and most people suggest that you don’t get it because of its cost. When you consider what can possibly break in your home and how much the deductible is, there aren’t going to be many things breaking that the warranty will cover. It will, however, become useful if something catastrophic happens which is the point of insurances anyway, right? So, why should you get a home warranty?

You’re Likely Cash Strapped Right After Closing

It’s very likely that you won’t have a lot of cash on hand right after closing because you’ll put as much as you can towards the initial downpayment, so it’s crucial that you get some sort of protection if there’s a larger than marginal chances something bad could happen. Now, if all of your appliances are brand spanking new and the building is brand new, you can probably skip on the warranty. If you have a 15 year old water heater or a 20 year old HVAC, you might want to consider the relatively small cost of the home warranty as a hedge against a bad situation. Now, a busted water heater or failing HVAC isn’t a hazardous situation (you can work around both of those), but imagine if your roof collapsed or if you discovered termite infestation missed by the inspector – now you’re talking dangerous situations you need to have resolved ASAP (assuming the warranty covers it). Different warranties cover different things, so if you do get one, be sure to double check what it covers.

Peace Of Mind Is Priceless

You might say that this is what the insurance companies want you to believe, that you’re not buying insurance but instead buying peace of mind and you’d be right – it’s what insurance companies say but it doesn’t make it untrue. Some people worry more than others and for those folks, insurance buys them peace of mind and likely a few more years in their life, don’t discount that. Peace of mind is a wonderful thing when you don’t have it and if you can get it on the cheap, by all means get it!

Remember, this is a Devil’s Advocate post so the conventional wisdom says you don’t want a home warranty (the deductible is killer! $100 deductible is huge when your payouts are counted in the hundreds) so do your research, I just wanted to offer up the other side for debate.

{ 10 comments, please add your thoughts now! }

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10 Responses to “Buy That Home Warranty”

  1. tinyhands says:

    My problem with home warranties is that they never seem to cover what’s really broken. There’s too much fine print and too many exceptions to coverage. It’s common for sellers to provide one year of coverage to buyers, but I’d rather have the cash since that has a higher likelihood of being honored.

  2. Projoe says:

    We were actually given a warranty when we purchased our house last year from my realtor as a house warming gift. Now, our house is almost 50 years old, and, while it had some minor remodeling done before we bought it, there were lots of things that hadn’t been updated including a 10+ year old water heater. During the first year we used it couple times to fix some plumbing issues. So we definitely made our money back on that.
    When the time came for a renewal I was on the fence as to whether or not we should. The base cost of the plan was around 460 w/ a 65 dollar service call. I decided to go ahead w/ the renewal just because I knew in my heart of hearts that at least the water heater was due to die at anytime. Not two weeks after renewal did we have a water line break under the house (pier and beam) the estimated cost to repair it was 780. A week after that the hot water heater kicked the bucket and while replacing that we found a leak in the cold water line behind it. The cost for those repairs were about 1300 I believe. I had to pay 400 of that due to some of the work was needed to bring the piping to code which the warranty company doesn’t cover, but I only got hit once for the service call even though there were 2 issues. We also got an upgrade from a 40 gallon to a 50 gallon tank, then as an another added bonus the new water heater is by far more efficient than our old one so the gas bills are less than they used to be.
    So I look it as spending 990 bucks (400+460+65*2) on almost 2000 dollars worth of work, plus future savings. So the renewal was very much worth it. Now I just need my AC unit to keel over and I won’t have a reason to renew at all next year.

  3. Scott Kustes says:

    We were given a home warranty as a gift from our realtor and it has paid off handsomely. The very first night we were in the house, my mom broke the garage door. She thought she was pressing a doorbell in the garage (leading into the house). Instead she was pressing the garage door button, which brought the door down on her trunk lid (luckily only scratching the paint) and because the garage door was 28 years old, it didn’t have an emergency stop and blew part of it off the rails. $50, they sent someone out to give us a brand new garage door opener and to fix the garage door better than it was before.

    Then the dishwasher leaked, so for the $50 deductible, someone came out to fix it. Then we sprung a leak in a pipe running under the slab. We paid $75 for them to send someone out to diagnose it, give me my alternatives, and cash me out to do the fixing myself. So the plumber was $150 and they sent me a check for $350 (max for plumbing was $500), of which I ultimately spent ~$200 to reroute the pipes and redrywall the walls we had to remove. This is all in the 8 months we’ve owned the house. I’m considering reupping for another year as I think it’s worth it given the cost of repairs.

    My company is First American Home Warranty. I recommend them.

    Scott

  4. Almost 7 years ago, I bought a 7 year warranty on our Fisher & Paykel dishwasher. Cost us $90 extra on top of the $1,300 cost, and it was worth it. We’ve had 2 or 3 service calls over the 7 years, so we more than made up our money.

  5. tinyhands says:

    Ok, guess I’m the only one who had a bad experience. :)

  6. Haberstrom says:

    There is no ‘standard’ home-warranty — coverage, premiums, and underwriter reliability vary widely.

    Many ‘warranties’ require the house to be almost uninhabitable before they pay a dime. You must read the fine print to know ‘what’ warranty/insurance you’re really buying — and what it costs.

    Will the warranty/insurance company actually pay you in the event of a claim — or will they drag their feet or contest the claim (..if they are still in business years down the road)?

    Houses require maintenance & repair — a homeowner will spend about 1% of his house market-value each year for maintenance, over the long term. For example, most houses need a new roof every 15-20 years… costing an average of $8000+. Heating & Cooling systems also need periodic replacement — and are high-price items.

    Warranty companies can only make money by insuring things that are unlikely to break during the warranty period. That’s why it’s easy to get a free or low-cost warranty on a ‘new’ home… but legitimate long-term home warranties are very expensive.

    For the long term, you’re better off paying warranty premiums to yourself (self-insure).

  7. Foobarista says:

    These sorts of “cashflow insurance” have lots of survivorship bias: you hear about the people who got “lucky” and used them, just like you hear about the $500 Grandma won at the Indian casino, but not about the other 20 visits she made where she didn’t win a thing. If you can’t afford an e-fund for home repairs, you may be a good candidate to bet against yourself with insurance. Otherwise, you’re almost always better off with a reasonable e-fund and self-insurance strategy.

    For us, we go with lots of “wealth preservation” insurance by having lots of liability, and otherwise having high deductibles for other insurance, and no insurance on electronics or other small items.

    One’s approach to insurance is a financial strategy, just like one’s approach to investment.

  8. FatLady says:

    Here at the House from Hell, my experience was that a one-year home warranty–for which I, not the seller, paid, contrary to local real estate custom–wasn’t worth the price. Because the water heater crapped out literally on the LAST DAY of the warranty, I broke even on the expense. If the contraption had waited one more day to spring a leak, I would have lost money on the warranty.

    Meanwhile, during the year that the warranty was in effect, everything that could die in the house croaked right over. The warranty company came up with every excuse in the book and some that never before had been imagined to avoid covering repairs. On the few occasions that they did cover my claims, they sent incompetent workmen, one of whom dorked up the garage door opener (after the warranty expired, I had to pay someone who knew what he was doing to fix it) and another of whom lied in an attempt to get me to replace a perfectly fine toilet with a Home Depot special. And the hassle factor involved in dealing with the company was enormous: long waits on hold, frequent refusals to provide service, and days-long waits for service contractors to call & make an appointment.

    Many folks have good experiences with home warranties. But I wonder if, over several years, you don’t end up spending as much on the warranty as you would have spent on repair bills. One or two good low-repair years might negate the value of the warranty.

    If the seller buys the warranty as part of your purchase of a house, by all means grab it. But if you have to pay for it…?????

  9. Insuranceguy1899 says:

    Coming from an insider in the insurance biz and the recent owner of a new house (with a warranty) I can say this: Insurance companies stay in business by using the law of large numbers. For every claim they pay out they need 50 warranties to expire unused. Sure some people think that they have wasted their money by buying one of these things, but who really knows. I have been paying my car insurance for 8 years and haven’t been in a single accident. Have I wasted my money there? It sure feels like it, but for the very unlikely occurance that my water pipes leak and the garage door rusts and falls onto my car.I know I’m covered…. Or at least I think I am :)

  10. Happy Warranty says:

    My home was built finished being built in Sept ’2005. We were informed by 2- 10 Home Buyers Warranty that the one year warranty was about to expire. My husband has second thoughts about renewing as the first year went fine. I convinced him to renew. 2 weeks after our renewal was in affect, the A/C compressor went. We paid $50.00 (deductible grandfathered as this was the original builders warranty) for an otherwise $800 repair. The year after that we had ’3′ incidents to use our warranty – the cable broke on the garage; the A/C thermostat failed and had to be replaced and the circuit board on our gas heater (pool and spa extra coverage that we purchased blew). That year alone the costs far exceeded the $450 we paid for coverage. The labor and parts alone for all three issues would have ran well over $1500.00. In light of this, I vote for peace of mind. 2 -10 also covers roof, but not all warranty companies do.


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