When you buy a house, there’s a high likelihood you’ll be offered a home warranty. The main selling point for the home warranty is that it will be a good safety net in the event of large, expensive, and unforeseen repairs or replacements. And such a warranty can indeed be a good form of financial protection. But there are also drawbacks, and home warranties won’t benefit all buyers. So let’s see exactly what a home warranty is and whether you should have one when buying a house in Kauai.
What Is a Home Warranty?
The first thing to note is that a home warranty is not an insurance policy. It is rather “a service contract that pays the cost of repair or replacement of covered items.”
Basically, a home warranty is “a contract between a homeowner and a home warranty company that provides for discounted repair and replacement service on a home’s major components, such as the furnace, HVAC, plumbing, and electrical systems. A home warranty may also cover major appliances, such as washers and dryers, refrigerators, and swimming pools.”
The main justifications for a home warranty are: 1) to cover components of a home not covered by homeowners insurance, and/or 2) to cover repairing or replacing those things that wouldn’t meet an insurance policy’s deducible.
And here’s how a warranty holder goes about using a home warranty…
“Home warranty companies have agreements with approved service providers. When something that is covered by a home warranty breaks down, the homeowner calls the home warranty company, which sends one of its service providers to examine the problem. If the provider determines that the needed repair or replacement is covered by the warranty, they complete the work. The homeowner only pays a small service fee, plus the money already spent to purchase the warranty.”
What Is the Cost of a Home Warranty?
The typical cost of a home warranty is several hundred dollars annually, usually paid upfront, but may be paid in installments if the company offers that option. The precise cost of the plan “varies depending on the property type – single-family detached, condo, townhouse, or duplex – and whether the homeowner purchases a basic or an extended plan.”
The cost usually isn’t affected by a home’s age unless it is brand new, which increases the cost. And, in most cases, square footage doesn’t affect the price, unless it is greater than 5,000. Basic warranties usually don’t cover separate structures such as a guesthouse, but coverage can be purchased for these for an additional fee.
Also, a home warranty’s annual premium isn’t the only cost involved. Often, when you use your warranty, you’ll have to pay “a service call fee (also called a trade call fee) of around $75 to $125 every time [you request] that a service provider comes out to the house to examine a problem. If the problem requires more than one type of contractor to visit (e.g., a plumber and an electrician), [you] may have to pay the service fee for each.”
And it’s important to note that “home warranties usually don’t cover components that haven’t been properly maintained. Furthermore, if the warranty company denies a claim, you will still have to pay the service fee and will also be responsible for repair costs.”
Pros and Cons of Home Warranties
There are both pros and cons to a home warranty that you need to be aware of when buying a house in Kauai…
- “Can provide peace of mind if you’re purchasing a home with used appliances and older systems”
- Provides convenience when you’re new to an area and don’t know any contractors or other professionals to call on, which the warranty company can find and hire for you
- Alleviates the worry of having to make DIY repairs for those who don’t have the skills or are physically incapable
- Dollar limits per repair or per year
- Possibility of claims being denied “if an item has not been properly maintained
- Final say on whether to repair/replace an item (and often on the make and model) lies with the warranty company
- “Not all costs. . . always covered by the home warranty, and you’ll have to pay for a service call fee each time you have an issue”
Who Does and Doesn’t Need a Home Warranty?
Home warranties are most beneficial for those who . . .
- Don’t have a large emergency fund
- Do have an emergency fund, but want to use it elsewhere
- Don’t posses DIY skills
- Have (or want) expensive appliances
- Are buying an older home whose systems and appliances are near the end of their lifespan
Typically, home warranties won’t be of much benefit to those who…
- Have a large, usable reserve fund on hand
- Are buying new construction (owing to the duplicate coverage in that case)
- Have excellent DIY skills and knowledge
- Are “diligent with a maintenance schedule and have [the] home’s systems annually serviced”
Now that you know what a home warranty is and what it does, should you or shouldn’t you have one when buying a house? The answer, as we’ve indicated, depends on several influencing factors. But it also depends on the home warranty company itself – whether it’s a reputable company with good ratings. Your best bet then is to consult your Kauai agent for some guidance on this matter. So if you’re buying a house in Kauai and are considering a home warranty, be sure to contact us today at 808-634-4518.