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Should You Buy a Home Warranty in case of a Disaster?

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Sarah F. purchased her first home in Napa, California and during the purchase negotiations the seller added a one-year home warranty to give Sarah peace of mind about her new home. Shortly after the sale, Napa, CA was the hit by a 6.0 magnitude earthquake that killed one person and injured over 200 people.

The earthquake caused over $362 million in damage across parts of Northern California. Immediately after the earthquake, Sarah noticed a strong odor of natural gas, so she quickly exited her home.

After the home was deemed safe, she discovered that her furnace had been damaged during the earthquake and was irreparable. Since her insurance wouldn’t cover the furnace, Sarah contacted her home warranty company who immediately sent a tech out to look at furnace.

According to the technician, a full replacement was needed and there was no way of repairing the furnace. The home warranty company fought Sarah on the claim since she had just purchased the home. However, Sarah was able to provide the company with the home inspection at the time of the sale that showed the furnace was in good working condition.

In the end, the warranty company ended up replacing the entire furnace with a brand-new unit costing over $4,000. Luckily, this was the only damage sustained at Sarah’s home, which was minimal compared to the devastation of the other areas.

While not the world’s sexiest topic, a home warranty is a service contract that typically covers essential appliances and systems within your home, providing repair or replacement if equipment breaks down.

Most home warranty contracts include coverage for plumbing, electrical, heating and cooling systems, as well as the refrigerator, stove, oven, dishwasher, garbage disposal unit, washer and dryer.

Should you buy a home warranty?

Whether or not a home warranty is worth the cost depends on a number of factors and it certainly has its pros and cons. The problem with home warranties is the warranty may only cover the least expensive solution to the problem.

For instance, imagine it’s a record hot day in July and your air conditioner stops working. The technician tells the home warranty he can repair the unit for $500 or replace it for $5,000.

It’s a good bet that the home warranty company will choose the repair, even if it means they have to send a repair technician out to patch up the old system again and again. Meanwhile, you’re paying a service fee for each visit and the problem never really gets fixed.

Another drawback is you might only be allowed to use their technicians. Most warranty providers require that homeowners use preapproved contractors for any work.

Also, the home warranty may have claim caps. Your home warranty contract may cap coverage for individual repairs or on an annual basis.

For example, a sample contract from one major home warranty provider shows limits coverage to $1,000 per contract term for plumbing repairs and $3,000 per covered appliance.

In other words, if you have two air conditioning units that need replaced at a cost of $10,000, you may be over the cap.

Before you decide to purchase a home warranty, read the contract carefully so you know what is covered and what isn’t. Next, consider the condition of your home, its systems and appliances.

For example, if your home has a brand-new roof, A/C unit and all new appliances, you may have little need for a home warranty for several years. But, if your house is older, it could definitely be worth the money.

Finally, the best option may be to follow the one percent rule of homeownership. The one percent rule means saving one percent of the purchase price of your home each year for ongoing maintenance.

For example, if your home cost $300,000, you should budget $3,000 per year for maintenance. Yep, that’s a lot of money, but it’s better to have it in the bank for an emergency and not need it… than need it and not have it.

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