Is a Home Warranty Worth It?

 

If you buy a new computer, stereo, flat screen TV, cell phone or almost any other electronic device, the cashier at your retailer of choice will likely ask you if you'd like to protect your purchase with an extended warranty. While doing so can be a wise decision-perhaps your home is full of rambunctious Rottweilers who frequently destroy your belongings—that added protection comes at a price. Home warranties do as well.

A renewable service contract, the typical home warranty covers at least a portion of the costs of repair or replacement of covered items within a home. This can range from standard appliances such as dishwashers, furnaces and air conditioners to major systems such as plumbing and electric. Depending on the level of coverage selected, you may pay as much as $600 annually. That's usually in addition to fees for service calls on any filed claims.

Is a home warranty worth the costs? The answer depends—at least in part—on whether you intend to buy a new build or an older property.

 

New Build – Many new builds come with builder warranties that cover structural defects. Because the appliances and systems are new as well, they should be free of problems. In the case of a dishwasher with drainage issues or a refrigerator that's more hot than cold, you can likely get a replacement from the manufacturer. Unless you're a true Nervous Nelly, it makes sense to skip the home warranty and put your money into emergency savings instead.

Older Home – While rich in character and history, older homes are more likely to have defects. Before purchasing one, ask about the exact age of the appliances included in the sale and service paperwork for all the major systems. A home inspection is essential to determine if costly repairs or replacements are likely. If they are, the benefits of a home warranty may more than outweigh the cost of the annual premium.

Two of the companies that I've had good experiences with are Old Republic Home Protection & American Home Shield. Check out their sites and see if a home warranty might be right for your next purchase. For more articles like this check out my monthly newsletter.