Homeowners have the opportunity to buy home appliance and system warranties that are also known as Appliance and System Insurance. But, these “warranties” are not insurance policies. They are service contracts that cover your home appliances and systems such as heating ventilation, air-conditioning, hot water, electrical and plumbing systems. There is a great deal of debate among financial advisors and consumer advocates as to whether or not the service contracts make sense. Frankly, the decision is highly personal depending on many factors the most important one being, how risk averse are you?
What Isn’t Covered
These service contracts do not replace homeowners insurance and will not protect you against fire, a tree crashing through your roof or other perils covered by your homeowners insurance policy. Service contracts do not give you any liability coverage in the event that someone is harmed on your property.
Most service contracts require that in order for an item to be covered it must be properly maintained. This means for items such as your furnace and hot water heater you may be asked to produce maintenance records should the system need major repair or replacement.
What is Covered
Homeowners can choose levels of coverage.
Level I may only cover major appliances such as refrigerators and stones.
Level II may offer more protection by covering appliances and heating ventilation and air-conditioning systems.
Level III may provide the most extensive insurance by covering all the items in level II as well as homeowner’s entire electrical system and plumbing system.
When Does a Home Appliance and System Warranty Make Sense?
First let’s discuss when a service contract doesn’t make sense.
Renters never need a service contract
Buyers of new homes where major appliances have warrantees and the structure is covered by a builder’sguarantee do not need to obtain a service contract at this time.
If you’re a homeowner who doesn’t fall into either of the two categories above you may want to consider purchasing a home appliance and system warranty. Assuming you get a full warranty, that is a level III contract, you can expect to pay between $350-$500 per year. If you have a service call you will also pay in the neighborhood of $70 as your deductible. So, if you’re $1600 stainless steel gourmet stove stops working the warranty company will fix it, and if they cannot fix it they will replace it, for a total cost to you of $70 (and of course whatever your premium for the year is).
The warranty company is betting that homeowners will not have major repairs or replacements of appliances or home systems. The homeowner of course is betting that they will. As with all gambling bets one party has the advantage, and in this case it is the home warranty company. Basically the homeowner is protecting himself from a catastrophic loss. The protective nature of the warranty program is often confused with a typical homeowner’s insurance program, again it is not.
Folks who don’t like risk may find …
Would you prefer that you sold your home easily or with great difficulty? In a way, you could call this a trick question since there are many factors that do into making a home easier to sell. Drastically cutting the price of the home below what it is worth would help you sell it but you will not be gaining anything of value. Rather than follow such a method it would be a better idea to look towards other attractive benefits that would make a buyer look into the home. One such method would involve including a home warranty. While not a new idea, the home warranty is becoming more popular these days due to its increased effectiveness.
What is a home warranty? In a way, the concept is not much different than the warranty that would be afforded to a consumer product. It essentially provides a great help to the buyer as it financially covers any errant problems that may occur in the aftermath of purchasing the home. This does not include blanket coverage for every problem that might arise with the home. However, major services and functions will be covered through the warranty.
This is not to say that a homeowner warranty is identical to homeowner insurance. There is a huge difference between the two. Homeowner insurance is designed to cover a large portion (or all) of the value of the home in case of fires, natural disasters, and other such serious situations. A homeowner warranty is significantly scaled back from that but it is still of high value to a potential buyer. The warranty is mainly designed to pay for the costs of replacements and repairs of appliance and major home systems that have become broken as a result of normal wear and tear. The warranty may be called it or it may not. It all depends on how the home handles over the designated number of years the warranty covers after the sale.
As one can surmise, it may be possible to make a home warranty an attractive component to the sale of the home. Consider how the buyer looks at the availability of a homeowner warranty. The buyer sees the presence of the warranty as a huge discount on the home since some potentially expensive repairs are covered. Also, the buyer may feel very confident in the purchase of the home. Rather than looking towards problems associated with the purchase, they might assume that the house is probably in great shape. Why is this? It is because people assume that the warranty is easily offered because there is nothing wrong with the property. Consider this a form of reverse psychology that actually works quite well.
Sometimes you have to take a number of additional steps in order to sell a home. A homeowner warranty can be an excellent component in this regard and that is why it is so helpful to those looking to sell property.…