A home warranty plan is a type of service contract designed to help homeowners avoid huge repair bills. Usually, it covers major home systems (electrical, plumbing, etc.) and appliances (washer, dryer, furnace, etc.)
These services are growing more popular as people are purchasing more sophisticated and expensive appliances for their homes. However, many companies in this industry cannot be trusted, so one has to be careful when choosing a home warranty provider.
In essence, a home warranty plan is similar to home insurance, but it covers a different set of items and situations. That’s why it’s important to study your homeowner’s insurance coverage and well as the home warranty plan you plan to buy. Make sure there are no overlaps so you can get the maximum protection from both these policies.
Home warranty plans might differ in coverage and terms, but all of them act in the same way. If one of the covered items breaks down the homeowner contracts the warranty provider. The provider will send one of their associated contractors to fix the problem.
Next, you file a claim and the company pays for the repairs. You will need to pay a service call fee (usually between $70 and $80) and the coverage of the contract will have a limit. This means that if the cost of repairs or replacement exceeds the limit, the homeowner will have to pay the difference.
How to Use a Home Warranty Plan to Save Money
On average, a home warranty plan costs about $400-600 a year, depending on the coverage. The average appliance repair bill, however, ranges from $50 to $500. But complicated jobs, like fixing a motor in the washer or some important furnace part, can cost much more. Your expenses will skyrocket if you have to replace components or even the device itself.
When you consider this, do not forget that home warranty contracts also cover home system repairs. Things like fixing a leaking pipe will cost well over $400, and your insurance won’t pay for this type of repairs.
With this information in mind, you can see how a good home warranty plan can help you save money. It will allow you to cut down the unexpected expenses caused by fixing important appliances and systems.
And such a plan will also cover preventative maintenance. Therefore, you will be able to benefit from it even if none of your appliances require repairs throughout the year.
State of the Home Warranty Industry in the USA
Seeing how home warranties are an easy way to protect homeowners from unexpected expenses, it’s no wonder that they are getting more popular. The industry has been growing steadily over the last decade. It has now valued at $2.5 billion and continues to grow by under 1% a year.
Despite the advantages they offer, home warranties are not evenly popular all over the country. They are mostly used by homeowners from states where weather conditions significantly affect buildings and appliances.
Due to the influence of elements, Texas is the capital state for home warranties. Florida is a close second with its insanely high humidity level. Arizona isn’t far behind them with the extreme climate change predictions for the state. California is another of the top states where home warranty plans are in high demand.
In total, millions of American homeowners use this type of protection today. It’s the most popular among home sellers, however. That’s because buyers see this kind of policy as an additional layer of protection. Therefore, they are more willing to buy a property with a warranty. Many providers create specialized plans for home buyers.
The home warranty industry is rather new and it’s not well-regulated. Unfortunately, this leads to many unscrupulous individuals trying to scam homeowners out of their money. To protect yourself from this, you should only buy coverage from reliable providers that are both public companies and industry veterans.
Despite the market being big, finding trustworthy companies will be easy for you. American Home Shield, usually referred to as AHS, is the largest provider of home warranties in the USA. It should definitely make it on your shortlist of top options. Other names on that list should also come from top companies available in your state.
This industry is rather unbalanced and over 40% of the market belongs to AHS. There are over 180 home warranty providers in total, but nearly 80% of the market belong to the top 10. Those are the most trustworthy companies, as you can see from researching their reputation online.
Doing that kind of research is essential when choosing a home warranty provider. You must study professional reviews of these services as well as customer testimonials. You should also check the company’s history of dealing with complaints through the Better Business Bureau.
Only buy a plan if you are 100% sure you can trust the company not to go back on their promises and try to avoid payments.
How Truly Useful Is a Home Warranty?
Reading customer reviews and opinions about home warranties will show you that many people consider them to be a waste or a scam. Unfortunately, it’s true that many companies in this industry are rather unreliable. Claim denials are the most common issue when dealing with this coverage.
Other common problems include, slow response times and poor quality of the repairs. In both these cases customers are often forced to hire a private contractor, thus paying for repairs on their own.
Whether your home warranty plan will be truly useful for you will depend on the following:
- Plan coverage.
Choose the plan coverage wisely, otherwise, you will end up paying for something that you won’t use. Research what the most common breakdowns are in appliances and look for a plan that will protect you in these cases.
When researching breakdown causes, you should also check out repair costs. Calculate possible high-cost repairs to make sure that the plan’s coverage limit is sufficient to pay for expensive jobs.
- Service call fee.
Every time you call a contractor through a home warranty provider you are sure to pay a fee. Look for a plan where the cost of this fee isn’t likely to exceed the cost of possible repairs.
- Trustworthiness of the provider.
The most important thing to look for in a home warranty is the reliability of the provider. To determine if the company can be trusted, research its reputation online and study the contract closely. Read the fine print so you can be sure that there are no loopholes that the company can use to deny your claims.
In Conclusion: Do You Need a Home Warranty?
Home warranties can be a useful tool for a homeowner who wants to save money. For this plan to benefit you, choose the one that offers the most comprehensive coverage for your particular situation. You also need to research the provider to find out how long the company has been on the market and its standing with various consumer-focused organizations, like the BBB.
Follow these simple guidelines and if your home is a good match for a home warranty plan, you will be able to benefit from this coverage. The “right” type of home is the one with new appliances and recently upgraded systems.
Old places won’t benefit from the coverage due to high premiums and very frequent claim denials on the grounds of “pre-existing issues”. Therefore, consider purchasing a warranty after making an upgrade or moving to a new place.
Andrea Schmidt is a staff writer for Wealthy Turtle. She’s a stay at home mom who loves to write about paying down her family’s debt, living on a budget, and exploring new side hustles to earn extra money.