What is a Home Warranty and Do You Need One?

Mention home warranties and you open a can of worms. Ask folks what they think about this type of insurance and no two people will have the same opinion. Try the internet and you’ll find a quagmire of conflicting opinion.

Nonetheless, home warranties are widespread in today’s market and are a recommended tool to add value when selling your home.

This article about warranties does not apply to the comprehensive warranties provided by home builders on brand-new houses. We are only discussing home warranties on existing homes.

What is a home warranty?

A home warranty is a type of insurance that safeguards you financially from certain faults or malfunctions that may occur after you have bought your home.

It’s not like standard insurance because it does not cover things like roof, fire or flood damage and other things typically covered by homeowner’s insurance policies.

Items such as appliances, HVAC, the plumbing system, the electrical system and other machines and systems are covered, although the items covered will vary depending on the company and plan you choose. There are many options available allowing you to choose the right fit for yourself and your home.

Home warranty insurance is supposed to protect you from a sudden, large and possibly uncontrollable financial bill by making small, regular payments for your coverage.

What they really are is a kind of service contract that insures against the repair of a home’s major appliances, heating and cooling systems, plumbing systems, circuit breakers and other things. What things will vary according to each individual contract.

What’s the appeal?

They appeal to would-be buyers, who believe they’re covered should the air conditioner break down or the stove pack up during their first year of ownership.

They appeal to sellers because home warranties are a very effective marketing tool when you are selling your home. The seller also is covered during the listing period.

Buyers and sellers both, tend to put their faith in home warranties. Homes that come with warranties sell faster and for more money than those without, according to one company.

The issues

Many of the complaints about home warranties come from customers who are frustrated with a company for not paying claims for appliance repairs or the replacement of systems.

The truth is home warranty contracts differ widely from one company to the other. If the company refuses to pay for it, then there could be a written exclusion in the contract.

When choosing a home warranty company, you need to read all the fine print and this means it is essential to read every word of your contract!

Of the 500 different categories tracked by AngiesList.com, home warranty companies have led list as the most complained about companies in America for six years running.

Other options

If you buy insurance against risks you are able to pay for on your own, you are actually paying for sales commissions, expenses and company profits rather than for claims paid out by the warranty company.

“Instead of buying one of these policies, or placing any value in the one provided when you buy a home, you’ll do better to place that money into a home-repair fund” – Consumers’ Checkbook

Buying or selling, you should check with your local real estate agent and ask them whether a warranty is a good buy for your situation.

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