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As a renter, we’re used to the landlord covering everything. The second you sign your mortgage papers, though, everything changes. Not long after, all the scenarios that could ruin you financially run through your head.
We worry about burglars, floods, fires, and hurricanes. But, did you consider that a broken furnace, A/C, or a busted electrical system could also empty your bank account?
These events can cost you thousands of dollars, and homeowner’s insurance does NOT cover them. Most find out the hard way when something in their house breaks. Like I did.
Fortunately, I didn’t have to replace my fridge. Fixing the condenser did ding me for a few hundred bucks, though. As my wallet smarted from that financial hit, I wondered, “Why doesn’t homeowner’s insurance cover stuff like this?”
Apparently, home warranties do. However, as I researched this industry, I uncovered a trail of horror stories, broken promises, and regret. As a result, I do NOT recommend getting one.
In today’s blog post, I’ll show you why.
What home warranty companies promise
Lately, home warranty companies are becoming more visible. Frequently, you’ll see their ads running on TV, or before YouTube videos. They promise a cheaper, more efficient way to deal with home repairs/replacements.
Before we get started, let’s define what a home warranty is. A home warranty is a service contract that promises to cover the cost of covered home repairs/replacements. You pay a monthly premium, and whenever something breaks, you call your home warranty company.
You tell them what’s happening, and they send the appropriate repair person. For this, you pay a service fee – just like your health insurance deductible. Within a few hours, they arrive and fix the issue. Easy peasy, lemon squeezy.
According to industry boosters, home warranties can, at worst, make repair/replacement expenses predictable. At best, they claim that home warranties can save you money.
If only these statements were true. In reality, these plans miss the mark – by a lot.
Why home warranties fail to deliver
Home warranties sound like a great idea. However, the profit motive sabotages their promise. For starters, their terms and conditions are full of exclusions. Even top rated ones exclude specific repairs on some system/appliances and have coverage caps.
For example, Select Home Warranty has plans that cover an extensive list of appliances and home systems. However, once you dig into the fine print, you’ll find some unusual clauses. For instance, they cover plumbing repairs – but not those caused by freezing or tree roots. They include mainline stoppages – but only 100 feet from the access point.
Of course, there is always the convenient “preexisting condition” exclusion. Essentially, if the home warranty firm deems that a preexisting circumstance caused the problem, they won’t cover your claim.
And if they approve your claim? You still might be on the hook for a significant chunk of repair/replacement costs. For example, let’s say your central A/C conks out this summer.
After taking a quick look, the HVAC tech says your unit is beyond repair. To replace it, you’d be looking at a bill of $5,000 if you weren’t covered. Thank goodness for home warranties, right?
Not so fast. A week later, you get a shocking bill from your home warranty company. They want $3,000 from you by the end of the month. After contacting your home warranty firm, you find out that your Bronze Plan only covers up to $2,000 for A/C repairs/replacements. That leaves you owing $3,000 you don’t have.
Wanting the protection that home warranties promise (but at a low price), most miss this little detail. By opting for a budget plan, you leave yourself open to nasty surprises.
Some outfits are outright scams
Bear in mind that the scenarios described above can happen with top-rated firms. Many lesser-known home warranty providers attempt to deny as many claims as they can. Others engage in outright fraud.
You’ll find scores of horror stories on social media, as well as review sites like Trustpilot. On Reddit, I found this eye-opening thread where homeowners shared how they got burned by home warranty firms.
The original poster relayed how Home Warranty of America (HWA) only reimbursed them $120 of a $550 bill. When challenged, the customer service representative said that HWA’s reimbursement schedules were a secret.
Another, also an HWA customer, suffered for weeks without A/C during a California summer. Only after they harassed random HWA executives on LinkedIn did their repair get done. Even then, they still paid $1,200, as their policy didn’t cover the installation – only the unit itself.
Other issues include replacements of systems/appliances with inferior units, incompetent technicians, and never-ending games of phone tag. When an industry reveals who they are, believe them.
Save up an emergency repair/replacement fund
Sometimes, adulting is unavoidable. Home repairs are one of those areas where you’ve just gotta do the responsible thing. Realize that when you become a homeowner, all manner of expensive events can happen at any time.
Before you even buy a home, I implore you – save up a repair/replacement fund. Home experts say that you should have 1% of your home’s value set aside for repairs each year. If your municipality appraises your property’s worth to be $300,000, you should have $3,000 set aside in a segregated account.
I get it – it’s hard to save money these days. But, part of being a homeowner is accepting the responsibilities that go along with it. Start saving while your house is in good shape – with any luck, you won’t have to dip into it anytime soon.
Stay away from home warranty firms
The internet has ripped the mask off many shady industries over the years. Thanks to sites like Yelp, Reddit, and Trustpilot, we know about the deceptions that home warranty companies engage in. Reality betrays the slick marketing of these firms.
They will make you expend MORE cash, not less. And you’ll be less sane afterwards. Avoid home warranties at all costs!