Are home warranties worth the cost?

Ask NJMoneyHelp

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Q. I got a solicitation from my homeowner’s insurance carrier (AARP’s Hartford policy) about an endorsement for extended warranties that would cost $30 per year. Similar plans I’ve seen would cost way more, and I’ve read they’re not worth the money. The wording in the link from the plan says it would cover equipment breakdowns like plumbing, heating, appliances and more. Is this worth it?
— Homeowner

A. You’re right that extended warranties are often not worth the cost. This is something a little different.

Home warranty plans are offered by various providers, said Chadderdon O’Brien, a certified financial planner with RegentAtlantic in Morristown.

That’s what the Hartford’s Equipment Advantage Protection is.

O’Brien said the total cost of these plans vary by provider and typically include an annual fee in addition to a deductible for each claim.

Operationally, the company that issues the warranty plan contracts with various repair service providers in your area who would be responsible for repairs to your appliances and home systems, he said. If you have an issue with any of your systems, your point of contact would be with the warranty company who would then coordinate with the appropriate service provider.

This is a critical point.

“If something were to happen to any of your appliances or systems, you’d likely want them to be repaired or replaced quickly,” he said. “Before entering into a home warranty agreement it is worth asking what the repair process looks like.”

Find out: How long does it typically take to get someone to your house? If a replacement is needed, what does that process look like? It is best to understand the process before you are in a situation where time is of the essence.

O’Brien said a deductible is also part of the overall cost of these warranties.

“It would be a good idea to contact Hartford and discuss what these costs might look like specific to your appliances and home systems,” he said.

Another question to ask is under what circumstance would Hartford reject a claim?

“Home warranties typically stipulate a certain minimum level of care and maintenance for the products which they are insuring,” he said. “Understanding the definition of `proper care and maintenance’ will be very important when it comes time to file a claim.”

If you are not able to document and substantiate the maintenance you have performed on your systems, O’Brien said, it could be difficult to get the insurance company to cover a claim.

Also, if any of your appliances were already in the house when you purchased it, the previous homeowner would have had some responsibility for the maintenance of the appliance. Again, having an understanding of how the insurance company will handle this is very important, he said.

“If the answers to these questions seem reasonable and having the coverage provides you with peace of mind, it may very well be worth purchasing,” he said. “In addition to not expiring, a home warranty is more comprehensive than store-bought or product-specific warranties.”

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.