We usually buy insurance for those just-in-case times – for auto accidents, for medical emergencies or in case our home is damaged by fire, wind or flood.
But what about a home warranty? Is such coverage necessary, or just another home expense? We already have many expenses like the mortgage, real-estate taxes and assortment of costs required to keep our home running smoothly – so is a warranty a justified expense?
We recently caught up with Dmitriy Krupin, Senior Vice President of New York-based, The Home Service Club, which offers home warranties in 48 states. Mr. Krupin shared the following perspective. "Look at it this way, a home warranty will protect most of a home’s major appliances and systems, from the refrigerator to the HVAC, electrical and plumbing, and maybe some of the extras such as a pool or hot tub. A manufacturer’s warranty may cover one item like a dishwasher for a short period, for that single item. A home warranty will cover many appliances and multiple home components like the HVAC unit."
When you compare home insurance – which may offset costs related to damage caused by storms, accidents or natural disasters – to a home warranty, the home warranty may be helpful for the appliance and other home system repairs that occur more frequently, Krupin says. In other words, home insurance is great for a significant, rare occurrence like a fire, while a home warranty covers multiple and inevitable failures of items that can break your savings account, like appliance repairs. Most home insurance policies cover accidents but will not cover failures due to normal wear and tear. This is where a home warranty comes in.
Some years, if lucky, you may experience home-ownership Nirvana and have nothing happen that needs attention—and dollars. Other times, a few or many parts may conk out, and you wish you had set aside that emergency nest egg for such unexpected issues. And this is when those who purchased home warranties thank their lucky stars.
How does a home warranty work? When a covered item breaks, you contact the warranty provider – not a repair person. You file a claim and the warranty provider will send out their approved service provider and you pay a deductible, which may average $75.00 to $80.00, towards the covered repair and the warranty covers the balance. That seems like a reasonable fee and solution to get your furnace or air conditioning system back up and running again!
So, is the preventative cost of a warranty worthwhile? The big challenge for home owners is two-fold. First, many resale home owners say "yes" since many parts may break down because of wear and tear. Others, probably owners of newly built homes, think the extra cost isn’t worthwhile as everything is new and under the manufacturer’s original warranty. That may be the reasonable conclusion. The product warranty, however, is limited and is usually for a defined period of time – such as one year. A home warranty, on the other hand, is renewable for as many years as the home is standing. It is also important to keep in mind that many parts covered under a home warranty, such as plumbing pipes or electrical wiring, for example, do not come with sufficient warranties from their manufacturers.
We also found out that there are two types of home warranties, as follows:
- Homeowner’s warranty plan, which is for those home owners already residing in a house who decide they want protection. The advantage of this warranty option is that the home owner can buy it at any time. It kicks in after a brief waiting period – anywhere from 10 to 30 days. Most warranty plans run for one year and can be renewed at the time of expiration. These plans cost about $400 on the low end, with pricing increases according to how many parts and systems you desire to cover. This is different from an individual product warranty that automatically comes from the manufacturer and covers just one item.
- Real Estate warranty plan, which is purchased at the time you close on your home. This plan starts immediately. It can also be purchased for different periods of time, with different features, can be renewed if there’s no lapse in ownership, and usually costs around $400.00, again depending on what’s covered. The main advantage of the real estate plan is the seller or real-estate salesperson might pay for the warranty as an incentive to buy the home. Another benefit is the real estate plan covers unknown pre-existing conditions, so a new home owner won’t be penalized for issues not detected during a home inspection, Krupin says.
In either case, it’s essential for the home owner to carefully read the fine print of the warranty plan to see what’s covered or not, to confirm the duration of coverage, and to understand the cost of the deductible. Most deductibles average from $65 to $125 for a homeowner’s warranty plan and about $95 for a real-estate warranty. Another important note – either warranty can be transferred to a new home owner – but it can’t be taken to another home.
(SIDEBAR) An additional coverage that Krupin’s firm and others are rolling out is called Seller-listing coverage. It’s a short-term warranty plan to protect home appliances and systems during the home listing period, until the home sale closes. "This way the seller may avoid incurring a huge expense for some issue that arises while the home is on the market," says Krupin. Another incentive for the seller is the plan is free until the home is sold—with one catch – at the time of closing the seller must buy a real-estate warranty for the buyer.