After walking our dog Tobey this morning, I walked by a home for sale that advertised a free one year home warranty. It turns out that a lot of homes are offering this as a way to differentiate themselves from other homes. It’s a way for a house to stand out on the street because you get to put a placard that screams “Free One Year Home Warranty.” Back when we bought our home, throwing in a home warranty was like a cherry on top. Buyers battled for homes but sellers probably thought that throwing in a home warranty could juice up demand even more. What’s not to like about avoiding appliance headaches for one year?
The question is – are they worth it?
What is a home warranty?
When you buy a home warranty, you’re basically signing a service contract. The contract states that, for the life of the contract, the warranty company will pay for repairs or replacement on a number of appliances within your home. The contract will spell out which appliances it’ll cover, how much you pay per occurrence (similar to a deductible), and what is not covered.
It doesn’t cover structural aspects of your home. So if your roof collapses, that would be covered by homeowner’s insurance. If your water heater leaks, the water heater would be covered (if you bought that coverage) but the subsequent water damage would be a homeowner’s insurance matter.
Is it worth it?
In the six years that we’ve lived in our home, we’ve had only one incident that would’ve been covered by a home warranty. Our water heater, which is 20+ years old, started to leak and needed to be replaced. It’s a mere $400-500 job, less if you install it yourself, and I’m sure a home warranty costs more than $80 a year. Of course, depending on how old the appliances are in your home, it might be something you could consider if you can afford the warranty but probably couldn’t afford to replace your refrigerator or stove, if it stopped working.
In general, home warranties are nice to have when you buy a home, as it protects you for a year from unexpected expenses at a time when you can least afford them, it’s usually not advised unless you have extenuating circumstances.
That said, if you ask ten people about home warranties, you’ll likely get ten different opinions on it. Some people think as I do – put the savings away in an emergency fund to cover those potential problems. Some people think the peace of mind is worth the extra cost each year.
In the end, it comes down to doing the math after you get some quotes and finding the solution for you.
(Photo: phoneymanflickr )