The following contribution is from another author.
The new year brings in more chances for a fresh start. For some, it’s also the perfect time to take a big leap, and one of those is buying a new home. Buying your own home is possibly the biggest purchase you will ever make in life. It’s a huge financial decision too. As a property buyer, you don’t want to throw your money into a pit. In some ways, you need to be reassured that your purchase comes with some kind of guarantee.
Unfortunately, this isn’t always how the dice is rolled. Some things and disasters are out of your control. So, how can you best prepare for these uncertainties? How can you protect your property and your hard-earned money? This is where insurance and warranties come into play.
It is hard to determine what kind of warranty and insurance policies are worth it when it comes to protecting your new home. There are so many things to research when buying your first home—insurance companies and coverages, home loan packages, bank loans, mortgage rates, and home warranties.
With so many things to think about, most homeowners just take out insurance instead of a home warranty because it is common practice. Many would also argue that warranties aren’t necessary for this day and age, while others still insist on their importance, especially when buying a pre-existing home.
But before we get into the reasons why you should or should not invest in a home warranty, let’s start with the basics.
What Is A Home Warranty?
First and foremost, it’s important to make this distinction, a home warranty is not the same as insurance. A home warranty will only cover your items if they break under normal circumstances and through general wear and tear. The items that are usually covered under a home warranty are your heating and cooling systems, large appliances, and your electrical and plumbing system.
An insurance policy usually covers loss and damage from unexpected reasons such as fire, theft, robbery, earthquake, and floods. These policies don’t usually cover home repairs, unlike a warranty, but that would also depend on the provider and insurance plan that the homeowner chose to get.
It’s important to note that home warranties are acquired through a home warranty provider, not with an insurance company, real estate agent, or the seller of the property. Some appliances, especially a newly-purchased one, will also come with a manufacturer’s warranty which could last a year or more.
Now that you know what a home warranty is and how it is different from an insurance policy, the question is, do home warranties make sense in 2021? In other words, is it worth getting one?
The Pros And Cons Of A Home Warranty
In a nutshell, there are many factors to take into consideration before you decide to get a home warranty. Unlike insurance policies which provide you with some kind of contingency plan, a home warranty provides a different kind of protection.
There are also huge changes in the real estate market today. More people from the younger generation opt to rent because it is much more affordable to do so. If you are renting, there’s no reason for you to consider getting a home warranty, since this is not available for renters. You must only consider a home warranty if you are a landlord or a homeowner.
Before you decide to invest in a home warranty, it’s best to check out this review of Super Home Warranty first. You may also go through the pros and cons, as listed below:
- Convenience: Having multiple appliances that are covered under the same home warranty is very convenient, especially when it comes to repairs. That’s because you don’t need to spend time looking around for the best repair service providers in your area. You just have to call your warranty provider and they will send someone out to you.
- Savings: With a home warranty, you don’t have to spend out-of-pocket for home repairs. Your warranty provider could be offering you a service that’s worth thousands of dollars and you will only have to pay a manageable fee.
- Peace Of Mind: A leaky toilet or a malfunctioning fridge don’t have to become major catastrophes or financial strains to you and your family. Some repairs can cost a small fortune, but you don’t have to worry much if you’re covered with a home warranty. During a harsh winter, for example, you don’t have to worry if your boiler or heater suddenly breaks down, since the provider can fix it for you.
- Incentive For Homebuyers: if you decide to sell your home, a buyer might feel more at ease since the property comes with a home warranty. You can certainly justify a higher price rate because of this added guarantee.
BUT, let’s have a look at the cons too.
- You Might Not Need One: A home warranty should be considered more like a backup plan because at the end of the day, you don’t actually want your items or systems to break. It’s up to you and the reasonability of your provider to ensure that you’re not paying for excessive premiums. Aside from that, if you just moved into a newly-built home and bought new appliances with it, there’s no reason for you to get a home warranty yet. A warranty will only make sense if you are moving into a pre-loved home, which may have already leaks and defects in its foundation and systems.
- Not Everything Can Be Covered: Just like insurance policies, a home warranty cannot cover every situation. Certain repairs are excluded and you’re not covered for damages caused by natural disasters, which are arguably the most expensive repairs to be done. This is a matter that is mostly covered by an insurance policy. Also, not all appliances or systems are covered. While some appliances will come with their own warranty, some don’t. So, it’s always best to check with your provider to know what it is exactly you are paying for.
- Prices: While there are many reasonable providers, some will ask for extra to cover different items and systems, and their flat rate might be more expensive. This is where you should be doing your research and compare different providers against your budget before you come up with a decision. It’s also good to know what it costs to repair different appliances, as you don’t want to be paying more when something needs to be fixed. The big draw for these warranties is the convenience of having it all bundled together, but you might end up paying more.
- Terms And Conditions: All warranties have their own terms and conditions. These outline the exclusions, standards, and pre-existing conditions that may or may not be covered by the provider. So, read these terms and conditions before you make any final decision on getting a home warranty.
No one needs duplicate coverage. In some cases, a home warranty will only cover damages and repairs for appliances, and not cover systems such as your electrical and pipe systems. Other providers also cover only systems, and not appliances. Always double-check so you won’t end up paying for multiple policies that only cover the same thing—especially if you still have an existing warranty with your building contractor.
When To Consider Getting A Home Warranty
As mentioned earlier, a home warranty is not exactly practical for everyone. Renters are not even eligible to get a home warranty. Homeowners who purchase a newly-built house is still covered by a builder’s warranty, so getting a home warranty is redundant. It’s the same thing for those who just bought new appliances since these items are still covered by a manufacturer’s warranty.
However, a home warranty would be a good deal for landlords who are renting out a property to several tenants. Since many people are living in one building, the property is more susceptible to damage and deterioration. So, in this case, a home warranty would make sense.
If you are living in a home that was built over 10 or 15 years ago, a home warranty would also be a good deal since the house would be prone to pipe damage and other issues. Especially if you have old appliances, then a home warranty would make sense for you in 2021.
Investing in a home warranty has its draws, but ultimately there are so many factors that also make them redundant. If you can afford it, and you are able to get a good deal that can cover your biggest concerns, then it might just be worth it for you.
In the long run, though, it’s key to remember that more and more appliance companies are offering their own warranties. Insurance can cover you for bigger and more serious disasters. And if you’re building your own home, you could be eligible for a builder’s warranty too. So, your needs would really depend on your circumstances. The bottom line is to do your research and read the fine print before making your choice.
Featured Author: Chris Muller
Chris Muller is a professional personal finance writer who has written for some of the largest financial publications in the world. Chris brings a BBA and MBA in Finance, along with a decade of experience in the field, to help break down complex financial topics into easily digestible pieces through his written content in an effort to assist others in better managing their finances. Chris is currently in pursuit of FI/RE, is an aspiring minimalist, loves craft beer, and is a dad two to kids.