Do I Need a Home Warranty Protection Plan?

Purchasing a home warranty protection plan is one way to get some peace of mind after buying a home

Homeownership can be one of life's many joys, but it's not always cheap. Probably the last thing a homebuyer wants to do after closing on their new home is dish out even more money on appliances or systems that unexpectedly break or malfunction. It's a normal part of being a homeowner, though, and purchasing a home warranty protection plan is one way you can achieve some peace of mind.

A home warranty is an especially good idea if you're a first-time homebuyer with no experience in maintaining a home or property. Homeowners insurance does not cover breakdown of a home's major systems or appliances, but a home warranty protection plan can help with repair costs such as an air conditioning system that breaks down in the middle of the night, or your refrigerator suddenly stops running.

Who pays for a home warranty plan?
Normally, the buyer will pay for a warranty plan, but depending on where you live, it could depend on local traditions. Some sellers opt to pay for the coverage because it's a seller benefit. You can ask your agent in the offer to request the seller pay, and they may agree. The National Home Warranty Association says homes with protection plans sell about 50% faster than unprotected homes. Many real estate agents will also give buyers a home warranty as a gift at closing.

How does a home warranty work?
With most plans, you will pay an annual premium for coverage. When a repair is needed you call the plan's service provider, which normally operates 24 hours a day, 7 days a week, and they send an authorized service contractor to your home. A small service fee is required - typically in ranging from $35 to $50, and usually less than $100 - and the contractor makes the repairs or recommends the appliance be replaced.

Policies usually last for one year, costing an average of $295 per year for a moderate sized home.

What does a home warranty protection plan cover?
Home warranty protection plans may offer different levels of coverage. Most standard plans offer repair or replacement coverage for a home's heating system and ductwork, plumbing, and electrical systems. Other major appliances that can be added include the dishwasher, the water heater, stove, clothes washer and dryer, even swimming pool equipment.

If you are expecting your appliances or systems to break down sooner than later, you can also consider increasing your deductible in order to make a guaranteed replacement provision more affordable. Increasing your deductible from $500 to $1,000 can often reduce your premiums.

The majority of plans do not require an inspection of a home's systems or appliances. Because coverage's will vary from state to state and from policy to policy, ask to see a copy of the policy before you commit.

What does a home warranty not cover?
Pre-existing conditions are typically not covered. For example, if the water heater hasn't worked properly for some time, it probably won't be covered in the buyer's home warranty plan. Also, there may be limitations on coverage, which cover costs only up to a certain dollar amount. Items typically not covered include: sprinklers, faucet repairs, and permit fees.