How Home Warranties Work
In understanding the value of a home warranty, a consumer should first have realistic expectations about repair or replacement service. A home warranty is a service plan, not an insurance policy. It usually comes with a service deductible, which may be charged for each item repaired or replaced. The warranty also may require the homeowner to use the service contractors that are stipulated under the plan.
Consumers should also realize that while the warranty itemizes each item covered under the program, the coverage most often is related to the performance of the hardware or system. That means when it can be repaired rather than replaced, it will be.
Are Home Warranties Worth the Money?
The answer depends on whether you're the buyer or seller. The seller/sales agent may find the added dollars providential to provide protection during the sale and transfer of ownership. It may be a plum dangled to the buyer as a means of guaranteeing the quality of the home and appliances. And the premium can be tucked onto the sales price.
If the cost makes sense to the buyer, the extra few hundred dollars offer peace of mind for the year or two they have warranty coverage. Two or three house calls over the period might pay for it depending on the extent of repairs. Enhanced warranty plans costs more and are available for add-on items like spas and pool systems, trash compactors, septic systems, and outdoor kitchens.
But, Do You Need the Coverage?
Consumers should think twice before buying a home warranty on a new home. According to MoneyTalksNews, new homes typically come with at least a one-year warranty on built-in appliances and major heating/plumping/electrical systems. And builders in most parts of the nation are required to cover structural components against defects for a minimum of 10 years.
Two years ago, Consumer Reports warned readers that even the top service plans are not worth it. Too many times, the magazine said, claims are denied because homeowner's cannot prove the problem wasn't pre-existing or that routine maintenance of the item was performed. Claims representatives may ask for detailed records on each item's repair history. Sometimes, Consumer Reports said, service contractors even refused to show up when their firm had a track record of ignoring certain claims.
Several warranty reviewers recommended that home buyers take the money they planned to spend on a warranty and create a home repair account instead. Also, those who buy big ticket items for the home can usually buy at least a one-year extended warranty from the dealer/manufacturer.
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