Worthwhile Security or a Scam?
Are home warranties worth the money? Some people swear by them. I personally swear at them.
Home warranties are an insurance policy that covers many items in your home. They cost about $500/year. When something breaks down, you call their 800 number and they send someone out to try to fix it. Usually you pay a $50-$90 trip charge, kind of like a deductible.
They say they will either fix the problem or replace it. Sounds pretty good. Especially since they don't send someone out to inspect the condition of your home and they don't care how old your home is.
But let's be real.
Insurance companies have to make money and they don't do that by paying out any more claims than they really have to. So one needs to know what the exceptions to the coverage are.
Do a Google search and you'll find plenty of customer reviews for various plans. It seems that there are a lot of unhappy campers.
There are some very happy customers too. But is it maybe like
the lottery? There are always a few lucky winners but the vast
majority of people who end up losing.
Here is a link to a site by a guy who worked on the inside of one of these companies. It explains a lot. He explains how the system works. http://www.syix.com/emu/html/ahs.html
I personally have experienced these plans. I bought an older home with a 25 year old hot water heater. I thought a $400 home warranty would be a bargain because I was probably going to have to get the hot water heater replaced.
It took two years before my hot water heater started to leak. It was on a Friday night. The bottom line is that the plumber they sent charged me $1350. The home warranty company
was only going to pay $400 for the actual hot water heater but none of the other stuff such as disposal fees and code upgrades.
I had to pay $950 of the $1350 bill.
With the weekend coming up and a wife and kids wanting to take showers, I wasn't in a position to negotiate fees. I really couldn't shop for a better price for the "extras" that the plumber said I had to get done. I sucked it up and paid.
The next week I had a different plumber over for another problem. I showed him what the other plumber had done. He said that it was probably a $900 job. That would be the total for everything including the hot water heater. That's how much I ended up paying even after the home warranty company
paid $400 for the hot water heater.
I thought I could beat the system and get something for nothing but I should have known better.
Since then, I've read about how to beat them at their own game. I learned a lot from this post here on ActiveRain by Beverly Cohen. She says that one should be ready to take the home warranty company to court if they don't pay. There are several big reasons why the company will probably be willing to pay you off instead of having to go to court.
Here's another good strategy by another ActiveRain blogger, Russel Ray. He says to write them a letter demanding your money for your claim and also note that you are sending the same letter to the state insurance commissioner. He says it gets immediate results.
If you enjoy the game of trying to get paid by insurance companies, go ahead and buy one of these policies. But if you're like me, when I have a problem, I just want it fixed and I don't want to worry about being ripped off. I would just take that money and start your own reserve fund. Make monthly payments to it just as if you were having to pay a condo HOA fee.
Also, use a site such as Angies List or Kudzu to put together a list of good service people who you can call when something breaks down. Here's a good article at Angie's List about home warranties.
If you don't have a few thousand dollars available to cover an immediate emergency, then you might want to reconsider whether or not you should actually be buying a home right now.