Home warranty: saving headaches or a non-justified spend?

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Home warranty: saving headaches or a non-justified spend?

It comes as a shock to many first-time homeowners. Imagine it’s a sweltering summer day, and your central air system breaks. After consulting with a repair technician, you find out a full replacement is necessary.

No problem – your top-of-the-line home insurance policy should take care of the bill. A few minutes later, your insurer drops a bombshell – they don’t cover wear and tear expenses.

No homeowner’s insurance policy does. It is meant to cover damage caused by unforeseen emergencies, not by general maintenance. It truly is a bitter pill to swallow.

What can we do about this? An increasing number of homeowners are signing up for home warranties. According to figures released by the National Home Service Contract Association, four million households had home warranties in 2015. That includes a substantial amount of policyholders in Tennessee based on expert review site reviewhomewarranties.com.

What is a home warranty? They are home service contracts that cover the gaps left by homeowner’s insurance. Any time your fridge or hot water heater stops working, a repair person is only a phone call away.

However, these companies have attracted more than their share of criticism. Do home warranty companies live up the hype, or are you better off without them? That’s the question we’ll answer in today’s blog post.

What can a home warranty do for me?

Despite the buzz and controversy surrounding them, most Americans have no idea what a home warranty is. Rodney Martin, CEO of America’s Preferred Home Warranty, acknowledges this – according to him, only 3-4% of households have one.

What are the rest missing out on? For starters, these contracts offer one-stop shopping for homeowners. It seems every appliance and system in your house has a different technician. This routine can get annoying, as you’ll need to look up a different repairperson whenever something goes wrong.

With a home service contract, if something covered breaks down, you only need to call one number. Your home warranty company finds someone qualified to deal with your problem, and they dispatch them to your house. End of discussion.

What exactly does a home warranty cover? Each plan differs from one firm to the next, but you’d be surprised at the variety. Virtually all cover standard appliances and systems, but some plans pay for pest fumigation, chest freezers, and roof leaks. Read each contract carefully – this way, you’ll get the best coverage possible.

Home warranties offer household budget predictability

Another big advantage of home warranties: they offer badly-needed stability to your household finances. We presently live in an age of fiscal stress. Nearly 80% of Americans live paycheck to paycheck, and 40% of us can’t handle a $400 emergency (perhaps even more in Tennessee).

Many repairs cost more than that – for example, air conditioners can cost more than $900 to fix. Even worse, you may need to replace an appliance or home system. This can get prohibitively expensive – if you need to replace your furnace, it will cost you at least $3,500.

If you need to fix or replace an appliance or home system, it will likely empty your pockets. A home warranty prevents this scenario, as your premium and service fee covers all repair costs. Most home warranty plans start at $200/year, with the average household paying an annual premium of about $800. Whenever you summon a repairperson to your house, you pay a fee of roughly $60-$125.

Unlike bills that can soar into the thousands of dollars, home warranty costs are easy to account for in household budgets. The peace of mind offered makes it easy to save for fun things in life. In short, you’ll no longer have to worry about cancelling that trip to Disneyland because of a busted pipe.

What are some of the downsides of home warranties?

If home warranties are so great, why aren’t they more widespread? First, home warranties don’t make financial sense for everybody. If you just bought a new home in the suburbs, everything should be in peak condition.

Unless there’s a factory or building defect, your appliances and home systems should function as intended for 8-10 years. If you get a home warranty now, you’ll spend more on premiums than on the odd repair.

Not sure whether your house is old enough for a home warranty? Check out this home maintenance calculator, and it’ll show you when it makes sense to get a plan.

Second, the home warranty industry doesn’t have the best reputation. While reputable operators do exist, others offer poor customer service, use sub-optimal contractors, and deny reasonable claims. So, how can you be sure a home warranty firm is legit? See what review sites have to say about them.

There are two kinds – consumer review sites (like Trustpilot), and websites that analyze how a firm does business. Both offer valuable feedback – the former is useful for picking up on common themes (e.g. firm denies claims for trivial reasons), while the latter provides crucial data (e.g. coverage limits and exclusions).

Do your due diligence, and you’ll find a provider that will have your back when things go awry.

So, should I get a home warranty in Tennessee or not?

It mostly depends on your financial situation. Can you cover expensive replacements? Are you disciplined enough to save up a maintenance fund? If so, a home warranty is unnecessary – at best, you’ll save a few hundred dollars over the life of your house.

Did you just buy a new house? Don’t get a home warranty – premiums will exceed maintenance for the first 8-10 years. You’re better off starting a maintenance account – this way, you’ll be ready when the first big bill hits.

Who should get a home warranty? Anybody living in an older home that wants more financial structure in their life. With a home warranty plan, your costs are fixed, thereby making it easier to budget for home maintenance. As a result, you’ll sleep better, and you won’t have to worry about unexpected costs derailing other savings goals.

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