What You Should Know About Home Warranties

A home warranty is an agreement with a warranty company guaranteeing that in return for paying an agreed-to amount, you will receive discounted repair and replacement coverage for major home systems or appliances. Items included in a home warranty can include plumbing, electrical components, a furnace, air conditioning and larger appliances like refrigerators, freezers and washers and dryers.

With policies normally running just a few hundred dollars per year, it's easy to imagine situations in which a home warranty could provide some pretty big savings. However, any decision to shell out money for coverage should be arrived at only after careful consideration of the potential positives and negatives of a plan.

Potential Plusses 

• Emergency coverage
  Depending on where you live, you may experience temperature extremes that could make your home virtually unlivable should a system break down. For example, if you live in a place that experiences very cold temperatures, having a home warranty could mean not having to pick which furniture to burn for warmth when the furnace go kaput. 
• Relatively inexpensive
  A safe estimate is for a warranty to cost you around $30-40 per month. While that's not chicken feed, the peace of mind it can afford may be well worth the money. 
• Savings offered
  This one might seem obvious since, well, it's the likely the main reason you're even considering purchasing a warranty. But run a few "what if" scenarios - such as the air conditioning going out - to get a grasp on how much a particular warranty would provide in cost elimination. Remember to factor in not just the cost of parts or replacements, but also service fees. 
• Attractive selling point
  If you are looking to sell your home, a transferrable home warranty can be a nice enticement for a potential buyer. This is especially true if your home is a little more “mature.”

Potential Minuses

• Emergency savings could be preferable
  The base fees you pay into a home warranty are gone once you pay them, whether you end up using the services or not. If you can instead create an emergency savings account to deal with unexpected home equipment failures, you can hold onto your money - and perhaps even earn interest on it - until you know you will need it. For newer homes that are less likely to experience major problems, you could have quite a bit of time to beef up your savings. 
• Service may be denied
  Warranty companies regularly deny policyholders service based on the company's interpretation that an item wasn't properly maintained. This can be frustrating for customers since the definition of "properly maintained" can be unclear prior to the technician's service check of the item. To add insult to injury, you can also be stuck paying a fee just for having the technician come out and deny you service.
• Less choice in service
  When you make a request for service with the warranty company, they will choose the contractor who comes to evaluate the situation and perform the repairs. This can lead to you being "stuck" with someone whose working style you don't appreciate.
• Less choice in repair/replacement
  Got an ancient washing machine that keeps giving out? Think it should be replaced under your agreement? The warranty company may not see it that way. It's usually within their rights to simply keep finding replacement parts as long as they are available. 

As with any contract, it's important to read the fine print before agreeing to a home warranty. You don't want to mistakenly assume that you are covered when it isn't the case. It's also a good idea to peruse online reviews of the warranty company to see how many complaints they've had in the past about their service. By educating yourself on the ins and outs of the company and their services, you can fend off potential unhappy results down the road.