Home warranty plans help offset the cost of repair or replacement of expensive appliance and home system components which are usually not covered under the home insurance.
It works similar like an insurance policy where you pay an annual premium and get the coverage for the whole year.
The whole concept of selling these Home Warranty service contracts is by creating fear on homeowners in the names of protection to the sudden breakdown or mechanical failure of their essential appliances, therefore, I do not think they are worth your money.
When you own a house, you acquire so many home system components that work every day. With age, they tend to wear, malfunction, and break down. Most of these failures do not have significant impact, but some need immediate attention.
It’s because of this fear, you are lured into buying a service contract where you pay a fix amount and you get a year’s peace of mind.
But do you really get a peace of mind like the way they advertise?
I’ll list below some of the reason why I do not buy in the concept of home warranty.
1. Additional fee for the peace of mind
The cost of the service contract (warranty) is not the only fee that you’ll owe.
Yes – you’ve heard it right!
The Home Warranty contract also has a trade service call fee, which is charge every time a technician makes a visit for inspection should issue occur. They call it a small fee per visit which is around $75 (depending on the contract).
I don’t know how small this fee is but, it usually keeps Homeowner from making service calls.
The DIY in you will kick in once you realize you’d have to pay $75 for a technician to visit and perform inspection.
The general inspection to find out the issue is almost half of the cost (around $35) without warranty and it is waived if you get it fixed by the same technician.
Nowadays, almost every technician would visit your home, diagnose the issue and provide you with a free repair quote.
2. You’ve to play their game
If you already have a technician who you can just call and have him visit in an hour to check on the problem and address it then you’re in back luck.
This is not how it works. You cannot get the problem fixed yourself and get reimbursement for it. (Only Health Flexible Spending Account works that way). In case of Home Warranty, you must play their game. They’ll send the technician of their liking (and availability), who will visit and evaluation the situation.
The repair must be authorized by the warranty company and their technician (or contractor) before it’s fixed. On rare occasion, they’ll accept to use your technician if they do not have one available.
3. “Repairs happen immediately” – Think again!
It is nowhere in their contract that says Warranty company is required to provide expedited services
They say they’ll make reasonable efforts to expedite services accordingly. Some contract also says, an additional fee may apply.
Therefore, if you are in trouble with the appliance due to a storm or weather impacts where there is statewide shortage, then good luck with the immediate repairs.
One of the biggest complaints about the home warranty is that most of the people must wait longer before their service requests are addressed.
4. Not everything is covered
This is the big one.
If you have read through the service contract, you’ll realize, the contract limitations and exclusion list is longer than the coverage items.
Therefore, it would be foolish to assume that warranty will cover everything that’s not covered by the Homeowners insurance.
The languages on a contract are often convoluted. Almost all the home warranties have list of items that are not covered.
I did this instead of buying Home Warranty
This is what I do and by no means I’m asking everyone should follow it. I’m doing this instead of subscribing to Home Warranty because it makes sense to me.
I’m not kind of a person who gives in easily.
I hated it when I was told I needed to protect my property for emergency breakdown by buying Home Warranty.
It sounded like a great idea when the seller paid for it while I bought the house.
It was a cheap ($550) insurance that comforted me to sleep well at night.
After a year, the premium went up and I had to pay out of my pocket.
It forced me to re-think if Home Warranty is even worth it.
I didn’t like the idea of having to pay $75 trip charge for each visit when I could get it done for $30 (if not free) through Home Advisor.
Also, I wanted to get the repairs done immediately, when its emergency rather than waiting for the warranty company technician to schedule a visit.
At the same time, I do not want to be in a situation where I don’t have money to make the repairs.
Therefore, this is what I do.
I setup a separate online bank account.
Checkout another post, where I explained why I choose online banks against the traditional brick and mortar banks.
I chose Capital one online bank account. It does not matter which bank you choose but go with an online bank because there is no minimum balance requirements and you can rename them as a Home Improvement funds.
I scheduled an automatic deposit of $200 from my personal account to the Home Improvement account every month and let it grow. In future whenever you need repairs done, I’ll dig into this fund to pay for it.
You can also go further a step and setup an investment account and let it grow.
When needed, you can use it to pay for repairs. The only risk to this is you might have to use the money when the market is down.
To compensate the risk, you can split the investment and cash value to 50-50.
Now let’s go to some of the doubts you’ll have for using my method in comparison to Home Warranty!
What are you going to do, if you don’t have enough funds in your account yet but need bigger repair?
Straight answer – You’ll probably end up spending money from your personal account or have to borrow it.
Similar will be the case for the condition where you have the Home Warranty, but the repairs are not covered.
You might stumble upon a situation if the appliance breakdown on first couple of months you switch from Home Warranty to going with personal Home Improvement fund and you do not have enough funds.
Also, you’re going to be doing this for your life (or as long as you’ve a home) therefore, there’ll be time when you’ll have so much money in your account and no repairs needed. Similarly, if you subscribed to Home Warranty, you must renew it every year. Nobody can predict the appliance breakdown
What if my appliance breakdown twice a year or frequently?
When you replace an appliance or get it fixed, it usually comes with a warranty.
This warranty usually is for a year and the probability of breaking it down twice year is very low (if not highly unlikely).
There are some risks involved with not getting a home warranty and not everyone can afford not having it. It does give you a peace of mind for any possible emergency break down of appliance which are very expensive to repair.
Also, it takes discipline to setup a separate account and deposit monthly contribution to the account consistently.
Both plans have their own pros and cons. Which one are you going to choose for your home?