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Q: We were encouraged to buy a home warranty during the home buying process, but we didn’t really understand how it would help us. Now that we’re in our new home, we’ve realized that the older systems and appliances could fail at any time and how expensive the repairs would be. Can you buy a home warranty after closing on a house, and is a home warranty worth it?
A: Congratulations on your new home—and congratulations for recognizing how costly repairs and replacements can be before you actually need to pay for them. In order to decide if you want to purchase one, it’s important to ask a question: What is a home warranty? Many home buyers are presented with the option of purchasing one but don’t really know what a warranty covers or what it does. A home warranty is basically a service contract for your major home systems and appliances that can help you budget more effectively, maintain your systems and appliances without the fear of the cost exceeding your estimates, and repair or replace failed systems without breaking the bank. There are of course some limitations and conditions, so you’ll need to make sure you understand your policy. But if you’re asking yourself, “Do I need a home warranty?” there’s a good chance that the answer is yes. You can certainly purchase a home warranty during the sales process, and there are some advantages to that timing. However, home warranties aren’t only for buyers in the process of purchasing a home, so you can still get one days, months, or even years after you’ve bought your home.
You can get a home warranty at any point—even after closing on a house.
What is a home warranty for buyers? It’s a kind of guarantee or incentive when offered by the seller—an option to defray the cost should something fail right after the sale, before buyers are really prepared to shoulder the financial burden of a major repair. In that situation, the seller would pay the premium to purchase the policy, so if a covered system or appliance were to break down during the policy period (usually a year), the new homeowner would only be responsible for paying the service charge. It’s a great incentive in a buyer’s market because it takes the weight of worry off the buyer’s mind. Even if the seller hasn’t offered a warranty, a buyer can request one as part of the negotiations, or they can simply purchase one on their own. There’s a cost-benefit to purchasing the warranty prior to the closing, as some warranty companies will lock in a premium rate when you commit to the policy. There may also be a waiting period to take into account; if you commit to a policy prior to moving in, the waiting period won’t extend into the time you live in the home as much as if you’d opted for a home warranty only after moving in.
That said, there can also be a benefit to waiting to buy a warranty until after you’ve moved in. You’ll get to live with your appliances and systems for a while, and you’ll get a better sense of what you’ll want to cover with your warranty policy. Additionally, you may have more time to research and find a company you’re really happy with. Some people purchase warranties years after they buy their homes, when they realize that their home and appliances are aging and want some financial protection. There’s no rule about when you can and can’t buy a warranty.
Consider the waiting period.
Most home warranties don’t take effect immediately. This is to protect the warranty companies from those who would take advantage of the policy by waiting until they know a system needs to be replaced to purchase coverage, then cancel immediately after the replacement claim has been completed. This policy also saves other policyholders money on their premiums in the long run: Companies are less likely to raise their rates across the board by preventing bad-faith customers taking advantage of their policies. As a result, most home warranty policies have a 30-day waiting period between when you sign and pay for the policy and when it takes effect. This means you can take your time when researching and selecting the best policy for your home, but don’t plan to wait until a disaster is imminent to quickly buy a policy—it likely won’t take effect in time.
Understand what a home warranty covers and doesn’t cover.
If you’ve heard or read complaints about home warranty policies, they’re often the result of the policyholders’ displeasure that something wasn’t covered. The best way to avoid this kind of surprise and disappointment is to make certain that you understand what your policy covers and how it works before you sign any contracts.
Much of the uncertainty about coverage stems from the home warranty vs. home insurance conundrum. Together, these two types of policies form a strong layer of financial protection for homeowners, but they are not the same thing. Home insurance provides coverage for damage caused to the home by accidents, vandalism, or specific weather events such as windstorms, lightning, snow, and ice. A home insurance policy requires that homeowners pay a premium for a year of coverage, and then if a covered event occurs, the homeowners will pay a set deductible after which the policy will pay for the repair of the damage or replacement of covered items. Note that homeowners insurance pays for repairing damage—it does not necessarily pay to repair the problem that caused it. So if a pipe bursts and floods the kitchen, homeowners insurance will pay to dry out the floor and walls, replace flooring or cabinetry damaged by the water, and paint the walls, but it won’t pay to replace the burst pipe.
How does a home warranty work? Home warranties cover the maintenance and repair of covered systems and appliances from damage caused by age and normal wear and tear. In use, a home warranty policy is quite similar to a home insurance policy. Homeowners will pay a premium for a year of warranty coverage. Included in the contract will be a set price for a service call, usually between $55 and $150. If a covered appliance or system is having a problem or not working well, the homeowner will place a policy claim, pay the agreed-upon service call fee, and the warranty will cover the cost of the labor and parts for the necessary repair. If the system or appliance can’t be fixed and requires replacement, the warranty will cover that as well. As with any other warranty or insurance policy, home warranties have maximum coverage limits; depending on your policy, the limit may be per claim or per system over the course of the policy year.
What’s covered? It is particularly important that you read the policy language closely. Home warranty policies are contracts of inclusion, which means they will list out exactly what is covered. If a system or appliance is not listed on your policy, it’s not covered, so don’t make any assumptions and be sure to ask lots of questions before you sign. Warranty policies are offered in several combinations: system policies, which cover whole-house systems like HVAC, plumbing, electricity, water heaters, and garage doors; appliance policies, which include laundry appliances and installed kitchen appliances; and combination policies, which cover both. Many policies have add-on coverage for spas, swimming pools, septic tanks, roof leaks, and well pumps. Everything listed in your policy will have the same rate for service calls, though different systems and appliances may have different coverage maximums. Your policy will also include some conditions; you’ll want to keep any documentation you or the previous owners have of maintenance work, inspections, and homeowner-handled replacement of filters and other basic maintenance tasks, because if the system or appliance hasn’t been maintained well and shows signs that the wear is a result of negligence instead of normal wear and tear, the claim could be denied. Homeowners will also want to be cautious about DIY repairs, which can also invalidate the warranty coverage.
Determine whether or not you need a home warranty.
For homeowners with older homes and original systems or older appliances, a home warranty is a solid choice. When covered items are nearing the end of their lifespan, they’ll need more repairs, and replacement is on the horizon. Home warranties are not expensive when compared to the cost of replacing a whole HVAC system, so the policy may pay for itself. In addition, new homeowners may not have an emergency fund built up yet, having spent much of their savings on a down payment and furnishings. An unexpected system failure in the first few years of homeownership can force new homeowners to run up significant credit card debt or to take out personal loans to cover the repair or replacement of a system they can’t live without. For those homeowners, a home warranty is also an excellent layer of protection. While new homeowners with little extra cash to spend may wonder, “Is home warranty worth it?” a policy can save a lot of money in the long run.
Homeowners with newer systems and appliances who do have reasonable emergency funds and could manage to cover the cost of repairs and replacements with ease may feel that a home warranty isn’t necessary for them, and they’re probably correct—it isn’t necessary. However, a warranty can simplify repair calls and save money overall, providing a little financial padding and adding convenience.
Even if your home is a relatively new construction, it may still be worth getting a home warranty.
Much of the marketing material for home warranties focuses on older appliances and older homes, because those systems are more likely to be near the end of their lifespan or involve complicated repairs. Newer construction homes, however, also have components that may make a warranty a good option. First, new construction homes may still be covered under a builder’s warranty. Builders’ warranties are provided by the construction company and usually last for a period of 12 months after the installation of the system or appliance. However, most builders’ warranties are limited to the owner of the home at the time of the build and are not transferable, so if you’ve recently bought a newly constructed home and are the second owner, the builder’s warranty may not apply to you.
New homes and new systems can require more complicated repairs than older, simpler systems. Homes with smart systems that are interconnected with wiring and wireless components are complex, and may require specialized repair persons to complete the work, which can be quite expensive. Also, a new construction home hasn’t really been “run in” yet, so there may be problems with the construction or components that have not yet surfaced and won’t until after the builder’s warranty has expired. So while age-related claims may be less frequent with newer homes, a home warranty can still be a good plan in case of defects or small but expensive failures of individual components in complex systems.
Compare home warranty plans and companies to find the best deal for your needs.
Not all home warranty plans are created equal, so just like any other policy or plan you wish to purchase for your home, you’ll want to shop around. Get recommendations from friends, or check with your real estate agent, who may have recommendations based on companies their clients have worked with. Check reputations with the Better Business Bureau, and read online reviews (with a grain of salt) to see which companies have a reputation for good customer service. Examine the companies’ websites to see the list of appliances and services they cover, and see how that coverage is packaged and bundled. Take stock of what you feel you’d like to have covered in your policy.
Once you’ve identified the best home warranty companies for you, request quotes. It’s important to try to provide the same information when asking for each quote; because companies bundle coverage differently, it may be tricky to compare the quotes evenly. Look at the premium, what’s covered, the cost of a service call, coverage maximums, and the procedure for filing a claim. Finally, consider whether or not the company will allow you to select your own service people and technicians to perform repairs. This may not be an issue for you if you haven’t already established relationships with contractors in the area, but if you’re already set up with people you’re comfortable with, it may be worth paying a little more in premium to be able to continue to work with those providers.
Home warranties can help homeowners save money on the maintenance and replacement costs of certain appliances and systems in their home.
But are home warranties worth it? Many homeowners put off small repairs and regular service calls. Why? Because they know they’ll be charged a flat fee just for the repair person to walk in the door. Then they’ll be charged for an inspection, diagnostic tests, labor by the hour, and parts, and if the repair requires an additional visit, they’ll be charged for that as well. This is understandable, as qualified technicians deserve to be compensated for their time. But the uncertainty of the cost (and fear that what looks like a small repair could be a $2,000 repair hidden behind a wall) is what makes many people hesitate to call. Buying a home warranty policy means you’ll know exactly how much the service call will cost before you file the claim—it’s right there in your policy. This makes it easier to call when the problem is still small, preventing the need for huge repairs later on when the problem has gotten out of hand. And it means that your systems and appliances can affordably be maintained well and inspected regularly by qualified technicians, extending their lifespans. Take a close look at your appliances and home systems, consider what repairs or replacements might be necessary in the near future, and consider whether a home warranty might be the right choice. If you haven’t closed on your home yet, you might save some money by purchasing the policy before the home is officially yours, but if you’ve already bought your house, there’s still time to protect your investment.
