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Are home warranties worth the money?

The key, in buying one of these service plans, is understanding exactly what they do and don't cover.

By MSN Money Partner May 12, 2014 12:09PM

This post comes from Marilyn Lewis at partner site Money Talks News.


Money Talks News on MSN MoneyIf you've bought or sold a home recently, the chances are excellent you've purchased or received a home warranty.


Consumers frequently expect more than these plans deliver and end up frustrated. So we'll explain the pros, cons, ifs and buts of home warranties below.


Not insurance

Home warranties aren't insurance policies. They're service contracts. Like a service contract that covers repairs to your computer, a home warranty is a company's agreement to pay for fixing -- and, if necessary, replacing -- specified home components.


A home insurance policy, in comparison, covers losses if your home and its contents are damaged or lost to theft, fire or other causes.


Cost

A basic home warranty costs about $350 to $500 a year or more. It typically covers kitchen appliances, plumbing, water heater, furnace, sump pump, whirlpool tub, and ceiling and exhaust fans, Angie's List says.


"Enhanced" plans, purchased separately for another $150 to $300 and up, provide added coverage for such things as a washer and dryer, air conditioning, refrigerator and garage door opener, according to Realtor.com. Still other contracts may be added to cover other items.


You may be covered already

If someone gives you a home warranty, accept it -- at least while it's free. But understand that, even with someone else paying the premiums, you'll need to pay a service fee (typically $50 or $75) each time you need a repair.


Before buying a home warranty, learn what coverage you may already have. For example, if you're buying a newly built home:

  • The home appliances and systems typically have one-year warranties.
  • Most states require builders to warranty the home's structural elements for up to 10 years.

Also, when you buy new furnishings and appliances, use a credit card that extends the product's warranty. That can add as much as an extra year.


Is a home warranty right for you?

Sellers often buy a year's coverage as an incentive to home shoppers. Owners of new homes frequently pay the premiums after their free year expires.


Real estate agents give home warranties to clients as a thank-you gift for purchasing a home. Some buyers of older homes find that a warranty gives them confidence.


Other homeowners decide they're better off setting aside savings to cover home repairs and replacements.


One way to think about your needs: Compare the age of each covered item with its average life span (use these charts at the National Association of Certified Home Inspectors and This Old House).


With expensive components near or past their life expectancy, a home warranty might be a good idea. Components that have pre-existing problems, however, typically are excluded.


Pros

"It's especially a good idea to obtain a home warranty if you're a first-time homebuyer with no experience maintaining a home," About.com says.


 Real estate agent giving keys to couple in new home© Mark Scott/Photodisc/Getty ImagesWith previously owned homes, buyers inherit used appliances and home systems with wear and tear. New Jersey real estate agent Lorraine Labonne-Storch told HSH that, a few days after closing a home purchase for herself, the boiler at her new home caught fire. It cost her $12,000 to replace.


It would have been terrific to have had a home warranty, she said. She'd had the option when she bought the house but declined it.


Cons

Home warranties top the list of complaints received by Angie's List. One reason, Angie's List says, is the difference between customers' expectations and what their plans actually deliver. Homeowners also complain about the quality of service from warranty companies.


Before buying a home warranty, read the contract and understand exactly what it does and does not cover. You don't want your claim rejected because the fine print said, for example, that:

  • Refrigerators aren't covered.
  • You didn't maintain the appliance.
  • The appliance was installed incorrectly.
  • The appliance had too much wear and tear.
If you haven't read carefully, be prepared for surprises. You can't:
  • Assume your policy will replace a faulty component. The warranty company may insist on repairing it.
  • Assume you can call your favorite service provider. Home warranties usually require you to use a contracted servicer.
  • Assume the warranty will pay the entire cost. Although she would have been happy to have it, Labonne-Storch said the home warranty she declined would have only paid up to $1,600 to repair or replace the $12,000 boiler.

Find out:

  • What's covered. Learn which items are covered and what the warranty provides.
  • Exclusions and limitations. A refrigerator may be covered but the ice maker excluded, for instance. Claims may be rejected because of pre-existing problems or insufficient maintenance.
  • The exit. Can you cancel? Most contracts allow a 30-day "free look" that allows a buyer to cancel within 30 days and get a full refund, says the Service Contract Industry Council.
  • The service provider. Who will do the repair work?

The Better Business Bureau has more on shopping for home warranties.


Vet the company

Research a company using these sources:

  • Better Business Bureau. Type in your city's name. On the next page type the company's name. Or type "home warranty." You'll see if a company is BBB "accredited" (a company agrees to resolve complaints with the BBB and pays an accreditation fee of $400 to several thousand dollars). See company ratings, if any, and a summary of complaints to the BBB.
  • Your state attorney general's office. (Find yours from the National Association of Attorneys General.)
  • Your state insurance commissioner. (Locate yours with this National Association of Insurance Commissioners map.) Although home warranties aren't insurance policies, 32 states require companies offering them to register or be licensed by the state's department of insurance.

Have you made a claim on a home warranty plan? How did it go?

 

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