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How Do Home Warranty Contracts Work?

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It’s one of the worst feelings in the world. You arrive home on a hot summer’s evening, only to have your A/C greet you with sticky, warm air.

Your system is busted, and there’s nothing you can do to fix the problem. One sleepless night and a $1,500 later, you’re looking for a better solution. Thirty-six hours earlier, you had crispy, cold air and money in the bank. You’ve got your A/C back, but now, you’re broke.

With the average age of homes increasing, escalating maintenance costs are battering fragile home budgets. Increasingly, though, more Americans are finding that home warranties are a viable solution to their repair woes.

Before you sign on the dotted line, however, you must know how these agreements work. Below, we’ll show you what to look for in a home warranty contract.

home warranty contracts
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What are home warranties?

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Most Americans don’t know jack about home warranties. So, what are they? Quite simply, home warranties fill in gaps that homeowners insurance fails to cover. The latter policy covers you against most forms of catastrophic loss. However, it does NOT protect against any claim deemed to be caused by “wear and tear.”

Home warranties can protect homeowner finances against things like furnace failures, or electrical system malfunctions. If your heating system dies through no fault of your own, a new furnace can cost more than $3,000. If your house needs to be re-wired, you’re looking at a job that starts at $4,000.

How does a home warranty work? Every month, you’ll pay a premium that averages $30-$70. When something goes wrong, call your home warranty firm. Upon approval, they’ll dispatch a technician to your house.  Other than a service fee of $60-$120 (paid when a technician performs work), you’ll pay nothing additional to get the job done.

The most significant benefit of having a home warranty – you’ll no longer have to pay thousands out-of-pocket. This point alone will provide peace of mind if you’re among the 40% of Americans who can’t afford a $400 emergency. Of course, it’s also true you’ll pay for repairs via your monthly premiums. Even if you end up spending the same annually, though, predictable monthly payments will make it easier to budget for maintenance.      

What parts of a home warranty contract are important?

So, you’ve decided to seek out a home warranty – great! However, you need to be aware of what everything in your contract means before signing.

Chief among these are coverage caps. If you opt for a value-priced plan, repair/replacement may only be covered up to a certain amount. For instance, if you sign up with Select Home Warranty, their Platinum and Gold Plans completely cover ductwork repairs. If you chose the Bronze Plan, though, Select Home Warranty only includes the first $500 – every dollar above that amount comes out of your pocket.

Secondly, ensure a plan protects everything you want to be covered. Coverage of certain appliances/systems varies widely from company to company, and plan to plan. For instance, Select Home Warranty does not cover cooktop exhaust fans, but First American and Choice Home Warranty do.

Thirdly, dive deep into the fine print. A home warranty firm may cover certain systems/appliances but may write oddly-specific exclusions into your contract. According to ReviewHomeWarranties’ guide on Select Home Warranty, they only cover A/C units that weigh less than five tons. Additionally, mainline stoppages are only covered up to 100 feet. Every plan has its quirks, so be thorough in your analysis before committing.      

How to find a reputable home warranty firm

Like any industry, some firms are reputable, while others are only out to make a quick buck. Before making your home warranty shortlist, you need to exclude the bad apples first.

After finding out which firms operate in your area, see what others have to say about them. In years past, we used to rely on word-of-mouth to make decisions. Today, though, review sites like Trustpilot allow us to get a clear picture of a companies’ strengths and weaknesses.

Once you have found 2-3 firms worthy of your trust, analyze them further. In-depth review sites like save you the trouble of countless phone calls and hours of research. They break down what firms protect, coverage caps, fine print, and more.

Compare what a company has to offer against your needs. Some home warranty plans may look good, but they may be out of your budget. Some may be tantalizingly cheap but may provide inadequate coverage.

Take the time to get this right, and you’ll end up with a plan that works.      

Pay attention to detail, and you’ll avoid getting cheated

Homeownership has never been easy. In 2019, however, tighter home budgets and increasing costs have put unprecedented pressure on family finances.

Home warranties can help tame maintenance costs, but only if you select a plan that makes sense. By implementing our suggestions, you’ll take a huge step towards getting these expenses under control.

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John Meeks
John is a freelance writer specializing in finance and entrepreneurship. He also consults clients about financial management and small business solutions.

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