Home Warranties

One of the biggest, and financially taxing decisions you’ll make in life is buying a home. This rings true regardless of your socio-economic status. If you’re making $100,000 per year you might have your eyes set on a $500,000 to $800,000 property. If you’re making $1,000,000 per year, a $5,000,000 to $8,000,000 house is on the radar. It all balances out in the end, a significant investment relative to whatever you make.

Now, a home is an investment, and investments should remain protected. You’ve likely heard the term “home warranty” battered about. Back in the day (pre-Internet), there were terrible infomercials that spoke of home warranties, and then once the Internet took off online ads began surfacing. Some were legit, many weren’t, and here we’re going to dive into the facts.

A home warranty might provide you the owner (or the bank, with you being the eventual owner outright) with some piece of mind, but warranty providers need to make money too, so they typically build in some space in the contract to make it easier for them to reject payouts. The first question to ponder before considering a home warranty purchase is whether you are already protected. New-home appliances for example frequently are covered via their own warranties, and if they were purchased with say an American Express card, up to 24 months is added on in some cases. Second, how much are we talking for this warranty? Generally, there are three types of home warranties – plans for specific appliances, a plan for all appliances, or a plan for appliances coupled with electrical and plumbing systems. Also, additional expenses will always rear their ugly head, beware.

Third, most complaints that the Better Business Bureau for example receives is clients don’t understand what their plan covers or provides. The terms and conditions are key components here, vital pieces of information that should be poured over with a fine-tooth comb. Some plans might cover a refrigerator, but not the icemaker that comes with it. Or even the water tank, but not the hot-water heater. Along these same lines, it is necessary to know if the plan will replace or repair broken items. If a repair is deemed too expensive, some plans will offer to replace a broken item instead of repairing it. But if this happens, you run the risk of receiving a depreciated value where you need to then pay the difference out of pocket to upgrade back to the same model you preferred and enjoyed earlier.

Lastly, what are the limits on how much the plan will pay out. This is critical and while last on our list, should probably be bumped back up to the top. New homes and new appliances are new, and likely not required to be covered. You might pay $400 for $20,000 worth of coverage on things that will not break down any time soon. Again, it all depends on your pocketbook, but do your due diligence, all decisions that shouldn’t be taken lightly.