If you are like most of us, every time we see an ad about a man being told his homeowners insurance will not cover his broken air conditioning unit, our mind starts racing.We know how buying a new air conditioner could blow a hole in our budget or consume a good part of our rainy-day fund. The next thing we think about is buying a home warranty plan.
While the idea of a home warranty plan is appealing, it is one purchase we need to make with utmost care, if we make it at all. It is one of the most complained-about home-based services. However, if we combine realistic expectations and a certain set of circumstances, for some of us a home warranty covering residential maintenance and repair jobs can provide some much-needed peace of mind.
Home warranties come into our lives in two situations:
Related to a home sale: these warranties often come with brand new homes, offering a guarantee on structural defects, finishes, major systems and appliances. They may also be provided at the time of sale of an existing home. While you may not be paying for one of these warranties yourself, if you are factoring it into your purchase decision, you will want to read precisely what it covers and for how long.
Not related to a home sale: these warranties are purchased by owners of existing homes who are concerned about their exposure to costly repairs or replacement of existing appliances and HVAC, electrical and plumbing systems.
Regardless when a senior buys a home warranty, it is critical to look at it as what it is: a service contract and not an insurance policy. A home warranty is not regulated like an insurance policy might be. It is a contractual commitment by a company to fix or repair whatever you select for coverage for your contract, under very specific terms and conditions.
Most disappointments on the part of buyers come from not having read the fine print in the contract that the home warranty company provided. Expectations of what a warranty will and will not do are usually overly optimistic, unless you read all the requirements and exclusions that exist in some contracts.
However, a home warranty can be a good deal if you find a company that has a good reputation in your community, offers a contract that explains in clear language what will and will not be covered and offers you peace of mind because the warranty allows you to budget for such expenses.
Seniors are often on fixed incomes, whether they are living on Social Security plus some savings, or on the proceeds from a healthy retirement fund. In either case, surprises are unwelcome, and uncertainty makes them uncomfortable.
Home warranties can provide real benefits in specific situations, especially in homes that are older and where appliances are no longer under manufacturer’s warranty. However, your expectations must be realistic about what the warranty will cover. You need to know what the warranty will cost and what it will pay. The most reliable gauge, which cuts through all the fine print and advertised promises, is whether the company has a long-term history in your area with positive reviews and limited complaints.
Having a good home warranty means:
- Helping you budget for repairs and replacements by minimizing large out-of-pocket costs;
- Having one number to call for whatever repair you need;
- Benefitting from having the company screen the repair person it sends to your home;
- Piggybacking on the bonding and liability insurance of the company while an unknown person is in your home; and
- Having some peace of mind from knowing you have addressed one source of uncertainty.
The companies you are looking at for home warranties may be national companies or smaller, local companies. Either way, the first information you will want to gather includes the basic cost (for the contract and individual service visits), the warranties offered, how easy it is to use the service and to cancel it, and how available their customer service is.
You also will want to know more about how the service works: the period covered and any exclusions. Then, who comes to your house, how fast and how claims are handled. Lastly, if there are extra fees and how you can pay.
Once you have determined that a home warranty makes sense for you, it is time to start the selection process. It does not matter if you have never been handy, or if you used to fix everything in the house but no longer have the strength or energy. You will be turning over the ‘fixing’ decisions to someone else and will have little voice in the solution.
The concept is that you are going to pay a company $300-500+ once a year, and then pay a fee of $0-100+ for them to send an employee or contractor to repair your appliance or system. If you select the right company, it can turn out to be a winning proposition for you. However, if you sign a service contract without reading it carefully, you will likely be disappointed and feel cheated because the service did not meet your expectations.
Finding good companies: our search should begin with friends, acquaintances, HOAs or condo associations. Find people who sing the praises of their home warranty service. You will still need to do some homework, but at least those companies will have gone through one filter. If a referral comes through an HOA or condo association, the company will be more motivated to do a good job if they want to keep receiving referrals, and referrals are the backbone of their business.
If you then go online to search for other options, be certain you are looking at real companies with street addresses and local phone numbers, and not just companies or individuals marketing and generating leads for a home warranty company.
Look at local reviews on sites such as Yelp, Angie’s List and Better Business Bureau. In the latter, enter your city and state, then the name of the company or ‘home warranty.’ Remember that more people write to complain than to praise, so look for trends in any complaints and how they were resolved by the company.
Questions to ask: Once you have found 2-3 potential candidates, ask each one of them a series of questions:
- If you call the company, do they have 24/7/365 service?
- How long will it typically take before a repair person is at your home?
- Do they send their own employees or contractors?
- Are the people they send bonded and insured?
- What plans do they offer, what does each plan cost and what exactly does it cover?
- Can they provide a list of exclusions of circumstances where it will not cover a repair?
- Are there specific past maintenance requirements for an appliance to qualify for repair?
- Is there a ‘pre-existing condition’ clause in their contract?
- What other fees will you have to pay once the repair person has diagnosed the problem?
- What is the company’s policy regarding replacement of equipment that is not worth repairing?
- Do they repair with ‘like’ equipment or do they pay you the depreciated value of your old appliance?
- Is there a maximum amount the plan will pay out each 12-month membership period?
Once you have these questions answered by your candidate companies, ask to receive a copy of their contract so you can review it. Look at phrases like “we reserve the right” or “at our sole discretion” as red flags. If necessary, call back to get new questions answered. Also, pay close attention to how you are treated during the question-and-answer conversations. Any company is likely to be on its very best behavior when it is trying to get your business and may give you a hint of how you will be treated when you call for service.
Making a final decision: Once you have assessed the companies and have an informed impression of your options, you can revisit your initial decision to buy a home warranty. You can decide if what is offered makes you feel protected against large out-of-pocket expenditures in case appliances or home systems fail.
Some people suggest putting the annual fee into a savings account each year instead, for when you need a repair. In that case, you might call on services like Angie’s List or Home Advisor, or online handyman-finders like TaskRabbit to get the work done. The question is, what scenario brings you the greatest comfort?
Two areas differentiate what seniors prioritize from what others do when buying warranty services: age-friendliness and health-related value.
Age friendliness: The older you get, the harder it is to take care of your own home repairs, even if ‘you used to.’ Some tasks, regardless of age, ought to be done by professionals. Being able to trust a home warranty service to keep your home running well can be very valuable. If you can find a service that responds quickly and charges fairly – and maybe even comes to know you and your house – you will have found another key to remaining independent and successfully ‘aging in place.’
Health-related value: The inconvenience of failing appliances is manageable when you are in good health. However, as your health declines, you want to know your air conditioner works in Florida, or your furnace works in Minnesota. As mobility and energy levels lessen, it is critical to know you have a reliable, affordable resource to keep your home safe and comfortable. That said, weakened seniors are considered easy targets for less-than-honest service providers, so finding a trustworthy service is essential.
Each company designs different packages, depending on the items covered. Basic annual contracts tend to cost around $300-500+, and usually cover some combination of kitchen and laundry appliances, water heaters, air conditioners, furnaces and some other minor appliances. Plumbing and electrical systems, heating and ductwork might be included.
The next tier, which might add another $100-500 to the annual cost, could include more unusual appliances and outdoor items such as pools, spas, sprinkler systems, septic tank pumps and well pumps. Some companies offer appliance packages, systems packages and combo packages. Others allow you to build our own coverage list and quote it accordingly.
The other relevant fees are the per-visit service charges. They typically run from $0 to $100+ per visit. Some companies allow you to choose what you want to pay as per-visit fees; however, the lower the per-visit fee, the higher the annual fee.
Hidden fees: Unless you read your contract carefully, you may be surprised to find yourself paying for some of the parts used in repairs. Lastly, if an appliance is not deemed worth repairing, the company may offer to give you the dollar value of your depreciated appliance, which will not be enough to replace it.Other companies may give you that value as an allowance against the cost of a new appliance purchased through the company. However, these prices are not always competitive with what you would pay at retail.
The exposure to unexpected fees is another reason why home warranty contracts must be read in detail before you sign one.
In assessing home warranty companies, the elements you want to look at are the costs involved, the warranties offered, the ease of use and cancellation, and the quality of the company’s customer service.
Cost: As with anything you buy that has an ‘insurance’ aspect to it, it is hard to know what will break down in your home and what you will be exposed to as a repair or replacement. However, the cost will be right for you if the annual fee is affordable and if the per-visit fee is low enough to be absorbed if it comes into play.The cost is partially justified by the value of the peace of mind a good home warranty can bring. Some companies offer monthly and quarterly payments and offer a small discount for paying the annual fee in advance.
Warranty: Each company offers slightly different packages from its competitors. You can either select the package that is closest to your needs or build your own. Some companies will provide you with an entire list of items that can be covered, and have you mark the ones that interest you. Each item has a set value, based on the age of your appliance or system, so the company can simply add up the value of what you selected and that becomes your annual premium.
Ease: When something breaks down, the last thing we want is to face obstacles getting it fixed. The better companies will have 24/7/365 calling hours, even if non-emergency repair hours are only offered within extended business hours. Ideally, the repair person will be sent as soon as feasible, the repair will be smooth and, if there is a separate claim process, it will be seamless. The further your experience is from that description, the more motivated you should be to change companies, particularly if you can do so with short notice and still get a prorated return of your prepaid fees for unused months.
Cancellation: Many companies offer a 30-day money back guarantee and will refund the full fee, sometimes minus an administrative charge. Some companies have a 30-day waiting period before you can use the service, to ensure you do not sign up once an appliance has broken down. In that case, you will not have had a chance to test the service in any way before the cancellation period ends.Take note of the notice needed if you choose to cancel, so you are not forced to pay for an extra month of service.
Customer support: Particularly for seniors, easy access to customer service representatives is extremely important. A home warranty will only be used when something goes wrong. A company should provide several means of reaching a representative 24/7/365 so your issue is registered and you know when help can be on the way.
Having realistic expectations is the key to having a good experience with a home warranty service. The promise is that the company will keep your appliances and systems in working order, not that it will provide you with new appliances. To keep things in perspective, you may pay $400-500 per year to cover $10,000-20,000 of appliances and systems. The priority will be ‘repair’ over ‘replace.’
With that in mind, you will want to know how soon you can start using the service (usually 30 days after you have signed up and paid), and what will not be covered, according to the fine print in the contract and the explanation given by the person reviewing your order with you.
People you do not know will be coming into your house, so you want to know if the repair people will be company employees or contractors. Anyone sent by the company should be bonded, insured and background-checked, and should have formal identification that shows their relation to the company.
How fast your appliance or system will be repaired is vital; the older you get or the less healthy you are, the less you want to wait for repairs, especially when it affects critical appliances or systems.
Also, the simpler the claims processing is the better. You do not want one that is paper-intensive with documentation going back and forth just to get reimbursed. Any additional fees should be clear from the outset, with no surprises. And, the company should make it easy for you to pay the fees to which you have agreed.
A home warranty service can be a godsend, but you must select carefully.