If you haven’t purchased a home in the last 10 years (or even if you have), you may never have heard of a Home Warranty.
According to marketing literature published by 2-10 Home Warranty, there is a 68% chance that major systems or appliances in a home will fail in any given year. So, if you have older appliances, a home warranty may be worth examining.
A Home Warranty is similar to an insurance policy, but is actually a service plan. The cost of the plan, paid monthly or annually, covers the cost of repair or replacement of major systems and appliances such as HVAC, water heater, refrigerator, etc. Most companies have several plans to choose from, with fees as low as $30/month. You should expect to pay between $400-$500/year for a worthwhile plan. There is also a service call fee, which is typically about $75 per incident.
For example, let’s say that you have a service agreement in place and your oven goes out. You call the warranty company, pay the $75-ish service call fee, and they send out a qualified technician to assess the situation. Assuming the oven’s failure was due to every-day wear-and-tear, the warranty company will replace the existing oven with a new one of comparable quality at no additional cost to you. Figuring the average cost of a major appliance to be anywhere from $500 and up, you can see the potential savings.
It’s worth noting that not all home warranty companies are equally dependable when it comes to paying out claims, and consumer complaints are not uncommon. Consumer Reports offers some sound advice about searching out good companies and also some alternatives to buying a warranty.
Do not confuse a home warranty with homeowner’s insurance, which your mortgage lender likely required when you took out your home loan. Homeowner’s insurance covers the loss of your house from incidents (hazards) such as fire, storms or vandalism.
To add another wrinkle, the terms “homeowner’s insurance” and “hazard insurance” are sometimes used interchangeably. In reality, hazard insurance covers the loss of the structure, whereas homeowner’s insurance covers the loss of the structure AND your personal possessions and liability. The two are typically sold together and should be reviewed every few years to make sure that your coverage limits are keeping up with inflation. Your insurance broker will be happy to help you.