Are Home Warranties Worth the Money?

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It sounds like a good idea -- if a mechanical, plumbing, or electrical system in your house fails due to normal wear and tear, or if you need appliance repair and maintenance, someone comes out to fix it and you only pay a small deductible or a service call fee. All of this protection and peace of mind is just a few hundred dollars a year; but is it worth it?

That depends greatly on who is paying for it, exactly what is covered, and what your expectations are going in. Like all insurance policies or warranties, the devil is in the details.

How Home Warranties Work

Unlike an auto insurance policy, where you are free to take the car to the body shop of your choice, home warranty companies contract with specific service providers in your area. When you wake up to a dead furnace and a cold home, you don't call a handyman; you call the warranty company. They notify their heating and cooling contractor for your area, and that company schedules the service call.

The technician determines what repairs are required and he and the warranty company will determine if you are covered. Coverage can be denied for several reasons: The damage was caused by a pre-existing condition, a lack of maintenance, or abnormal wear and tear. These are very subjective criteria. Your car came with a maintenance schedule, and it is easy to document that the required services were performed on time. Did you get a maintenance schedule with your garbage disposal? How about your breaker panel? Water heater?

If the emergency appliance repair is authorized, you pay the service fee or deductible to the repair company, and the warranty company pays the balance. If the claim is denied, you still pay the service fee.

Expectations

The coverage, limitations, and exclusions are all in the service contract, and the print can be mighty fine… make sure you read all of it. You need to know exactly how the coverage works, what is covered, and how the claim will be paid. For example, it is up to the company to determine if your appliance will be repaired or replaced, who will do the work, and what components will be used. Ask a potential home warranty company for a sample contract so you can study it at your leisure.

Tim Meenan, executive director of the Service Contract Industry Council, a national trade association that supports home warranties and advocates the regulation of the industry, says consumers should do their homework. "Read what's covered and the exclusions. If you read those two sections, you'll have a good idea if it's a policy you want to buy." The SCIC further suggest that consumers save receipts and work orders proving required maintenance was done.

Watch for a "cash in lieu of repair or replacement" clause, where the warranty company has the right to pay you a "negotiated rate that is less than retail". It may not be enough to actually get the job done at retail prices.

Research

There are a host of reviews online, but keep in mind that complainers are more likely to take to the keyboard than happy customers. Consistent complaints about claims, service, or the contractors sent to do the repairs can be indicators of trouble.

Before you decide on a provider, read the contractor comments to see how the people who do the work feel about the company. If the person they are going to send to you doesn't like working for them, odds are you are not going to be a top priority! Check with the Better Business Bureau to see if others are happy with the service.

You won't get to choose the contractor that the warranty company sends to do the repair. Ask for a list of service providers under contract in your area and do your homework on them prior to buying the coverage. If the contractor is not acceptable to you, shop for a different warranty provider.

See if your state Attorney General or Consumer Protection Department has filed any complaints or injunctions against any home warranty providers you are considering.

Are Home Warranties Worth the Cost?

Whether a home warranty program is worth the money depends on who you ask and when. The cost is typically $300 to $500 a year; a single big-ticket item like a furnace or refrigerator can make that seem like a bargain. For some people, that peace of mind is worth every penny.

However, you may go years without ever filing a claim, or you may file many claims that are denied. And keep in mind you are paying a $50 to $100 service call fee (basically a deductible) for every incident. The settlement may not cover the cost of the repair, and the quality of the work and materials used may not meet your standards.

Consumer Reports recommends that you save your money. Instead, they suggest you put the cost of the warranty aside in an emergency repair fund, and choose the quality of the materials and contractor yourself should the need arise.

If you are selling your home, the added benefit of a home warranty may sway a buyer to your home instead of your neighbor's. Buyers may perceive a lower risk in purchasing a home that comes with some protection against major system failures, and it shifts the liability from the home seller to the warranty company. For a seller, a home warranty that helps move the home or increases the perceived value of the property is worth the relatively insignificant cost.

Need More Help?

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The good news is that LendingTree Home Pros maintains a directory of home service professionals and can match you with a home pro in your area. All the home pros listed in the LendingTree Home Pros directory are properly licensed and insured and are backed by a $10,000 money-back guarantee!

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