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Tips for Evaluating a Home Warranty Policy

Posted in: Homeownership

When you purchase a home – whether or not it’s brand new – you will likely be offered a home warranty, but what does it cover, and is it a worthwhile expense?

What is a home warranty?

It’s a form of insurance or loss mitigation that offers discounted repair services or replacement of your home’s appliances and major systems – things like your air conditioning unit, electrical and plumbing systems, and washer and dryer.

What does it cost?

On average, a good home warranty policy costs about $50 a month, though premiums vary from company to company. Beyond the basic warranty, you have the option of purchasing additional coverage to protect items like a swimming pool or garage door opener, which will increase the cost of your policy.

Is it the same as homeowners’ insurance?warranty

While a home warranty provides insurance when your refrigerator stops running or your cooling system breaks, it’s not the same thing as homeowner’s insurance. Home insurance protects you against fire, hail, property damage or other disasters that threaten the structure of your home, while a warranty covers specific mechanical breakdowns.

Do I need a home warranty?

It’s certainly worth considering if you own a rental property or an older home. For example, if your house was built in the 90s, a warranty will come in handy when your 20-year-old AC unit finally gives out.

You may also want to purchase a warranty if your cash reserves are low, as replacing an appliance or repairing a faulty electrical system will cost a significant sum.

On the flip side, a warranty is likely unnecessary if you own a new home and are protected under a builder’s warranty, or if your home was recently renovated with new appliances and systems.

How do I find a good home warranty policy?

Unlike insurance agencies, home warranty companies are not covered by insurance commissions nor are they highly regulated, so it’s important to do your homework before purchasing a policy. Consider these tips:

  • Visit the Better Business Bureau to find a home warranty company with an excellent rating.
  • Determine your commitment level and find a policy that meets your terms. A one-year term is common for home warranties.
  • As with other types of insurance, compare home warranty prices and coverage from multiple companies.
  • Decide what you want your policy to protect. You can buy a basic policy to cover only your home’s major systems, or purchase additional coverage for items like a garbage disposal or swimming pool motor. The more comprehensive the policy, the more costly the premiums, so determine how much risk you can bear before deciding what to protect.
  • Read the fine print. For example, what day will your coverage begin? Are you clear about what’s covered in the policy – and what is not? What is the process for filing a claim, and is there a cost when you file?

A home warranty may be a good option for you and your family, but do your part to ensure you understand the cost, coverage and terms of your policy