Here are five questions you should ask before purchasing one of these plans
When you buy a home, it’s normal to worry that something may go wrong. Perhaps you’ll move in only to find that the fridge has gone on the fritz or that your plumbing has turned your basement into a swimming pool. A slew of television ads this time of year offer a way to arm yourself against such calamities: They suggest buying a home warranty.
Such warranties are designed to cover what home insurance policies won’t. They are actually service contracts that promise to pay for the cost of repair or replacement if covered items, such as appliances, plumbing, and heating and air conditioning systems, stop working.
To be sure, having a home warranty can provide you with peace of mind if things go wrong. But you should also realize that the providers of these plans have built-in wiggle room that can make it easier for them not to make payments. As a result, hundreds of consumers have complained to the Better Business Bureau about their plans, often because they didn’t get the payouts they expected, according to Katherine Hutt, a spokesperson for the Bureau.
An alternative to buying a plan could be to self-insure. Consumer Reports has long recommended that consumers put the money they would otherwise spend on a home warranty or a service contract into a savings account dedicated to product repair and replacement. That way, you won't risk paying for a plan that may not provide the coverage you expect.
If you're thinking about buying a home warranty instead, your first step should be to evaluate the likelihood that you’ll be able to use it. There are plenty of limitations—they generally don’t cover non-mechanical items such as your windows or the structure of your home.
Also, keep in mind that if you’re purchasing a new home, the items inside are probably still covered by the manufacturer's warranty and the builder's warranty, says Edgar Dworsky, a consumer lawyer who runs the website Consumer World. You have better reason to consider a home warranty if the home and the appliances are older.
Among the home warranty plans we examined are those from American Home Shield in Memphis, Tenn.; America's 1st Choice Home Club in Marietta, Ga.; and HMS Home Warranty in Sunrise, Fla.
Before you buy a home warranty, ask yourself these questions:
1. Do I already have protection?If you paid for your appliances with a credit card, you may be covered, Dworsky says. Some credit cards, such as theCitibank Cash Rewards Card,automatically double the manufacturer's warranty, usually up to 12 months, on items you purchase with the card. Some cards provide an additional 24 months of protection, no matter how long the manufacturer's warranty is.
2. How much will it cost?The answer depends on the kind of plan you buy and the provider you choose.Consumer Reports looked into the plans and found that you can generally purchase one of three kinds of plans: a home warranty for one particular appliance, for all your appliances, or for your appliances as well as your plumbing and electrical systems.
Prices vary depending on the coverage you choose. At American Home Shield, for example, a plan that covers most major appliances costs $200 annually, and one that also includes your home’s electrical and plumbing systems costs more than $800.
Besides the cost of the plan,there are likely to be additional expenses. When things go wrong, you’ll also have to make a co-payment when a contractor comes in to do the work. Fees range from around $60 to $125, depending on the work that needs to be done, according to the plans we examined.
3. Am I clear about what the warranty covers? Hutt from the Better Business Bureau says that most of the complaints the Bureau receives are because consumers don't understand the coverage their plans provide. The takeaway: Be sure to read the terms and conditions carefully. When we examined home warranty plans, we found that some policies will cover your refrigerator but not the icemaker that comes with it. Other policies may cover your hot water heater but not the water tank itself.
Sometimes, if your appliance broke under particular circumstances, it won't be covered. An oven, for instance, may not be covered if it stopped working while in self-clean mode or if it was damaged by a power surge, according to the plans we examined.
How you care for your appliances also matters. If you failed to perform routine maintenance or if an appliance wasn't properly installed, the home warranty provider could argue that it won't pay for repairs. There could even be a pre-existing condition—even if it wasn’t evident to you when you bought the home warranty—that allows the provider to not cover the item.
4. Will a broken item be repaired or replaced?Most home warranties explain that if a repair is considered too expensive, the provider might offer to replace a broken item instead. In such a situation, the home warranty company may only give you the depreciated value, requiring you to pay more to get the same model you had before.
5. Are there limits as to how much a plan will pay out? There are, but it depends on the kind of plan you purchase and the provider. The plan from America's 1st Choice Home Club, for example, pays up to $1,500over a 12-month membership term to access, diagnose, repair, or replace one covered item. Unless otherwise stated, it will pay a maximum of $7,500 for all covered items.