A home warranty is similar to a warranty you might have on your vehicle, computer or your home entertainment system. It usually covers all of your home’s major mechanical systems, including appliances, pools/hot tubs, wells/septic tanks, etc. As long as it’s included in the policy, you can add pretty much anything you want.
Home warranties are obtainable for most any property, including mobile homes, condos, townhomes and manufactured homes. They can be purchased by either the buyer or the seller; some sellers will include a home warranty policy to make purchasing their home more attractive. Including a warranty with the sale of your property is an excellent idea, especially if the home is older and the systems/appliances are aging. Since the policy can be purchased at closing, the seller doesn’t have to come up with the premium out of pocket; the fees are taken out of the closing costs. Plus, depending on the terms of the sale, the cost of the policy can be split between the buyer and the seller.
Home warranty policies are generally effective for one year and are renewable. However, you can expect to pay a little more for coverage each year, as the items covered continue to age. Policy costs vary according to the list of things covered, but an average cost would be between $350-$500/year. When there is a service call, you can expect to pay a small co-payment between $50-$75 when the repair person responds to make a repair. Home warranties only cover normal wear and tear on the included items in the contract. For example, if your microwave oven catches fire and damage your kitchen cabinets, your home warranty would cover the cost of the microwave; your home owners insurance would pay to fix the cabinets.
When trying to decide whether or not you need a home warranty, think about this: the older your home you are buying, the more you will benefit from a home warranty policy. Most systems and appliances covered under a home warranty can be expected to last at least 5 years. Therefore, a warranty may not be necessary for newer homes. As the components of your home age, the need for a home warranty policy becomes more critical. It’s obviously more attractive to pay $400 or $500 in policy premiums than fork out several thousands of dollars for a new HVAC system or even several hundred for a new stove. The policy easily pays for itself if a major home system has to be repaired or even one major appliance has to be replaced.
If you own investment property, definitely look into a home warranty. Unlike the appliances and systems in your own home, you have little, if any, control over the frequency and manner in which these things are used by your tenants. Chances are that you will have to replace or repair items and systems more frequently in your rental property than in your own home. As a landlord, your home warranty policy may very well save you money, but just as importantly, it can buy you peace of mind.
