How to choose a home warranty company

How to buy a home warranty

If you’re sold on the idea of getting a home warranty, the next step is to learn how to buy one. You’ll need to determine your coverage needs, compare plans, understand your contract and research companies.

Determine your coverage needs

First, you need to know what you want to cover. There are usually three types of plans: appliances-only, systems-only and a combination plan that covers both. Make a list of the items in your home and their ages. Are any of them still covered under a manufacturer’s warranty?

If you have a fairly new HVAC system, but your appliances are old, an appliance-only plan may be your best bet. If your emergency fund can handle the expense of appliances but the idea of paying for electrical or plumbing issues is worrisome, stick with a systems-only plan.

However, if everything in your home is aging, consider the combination plan for full coverage. There are some companies that offer only combination plans, which may be ideal if you need higher pay limits on all your items.

Compare pricing and plans

Now that you know what you need, get quotes from at least three companies. Prices can vary a lot — but don't just look at the base price. If you need optional coverage, such as a second refrigerator, sump pump or pool, you’ll need to add up those costs.

Next, take a look at the deductible, or service call fee. Every plan has a service call fee each time a contractor comes out. Some companies let you choose the amount (anywhere from $55 to $125), which can either lower or raise your monthly plan cost. The higher the deductible, the less you’ll pay each month.

You'll also want to know if there are any other hidden fees or caps on how much the company will pay out for a single repair. For instance, a provider may not pay more than $500 on a refrigerator, which may not be enough if you need to replace it. In this case, you’ll be stuck paying the difference. To find this information, you need to read a sample contract.

Read sample contracts

Don't just take a company’s word for it when it comes to coverage and costs — read the fine print. Most companies will let you take a peek at a sample contract upon request. Look for details like service fees, coverage limits and what’s completely off the table.

Pay attention to any exclusions, even for covered items. For example, your plan might cover your fridge but not the ice maker that's part of it. “If an issue arises that is outside of the purchased warranty tier, the homeowner is responsible to pay out of pocket for those repairs,” says Danielle Napolitano, a licensed Realtor in Georgia and South Carolina.

Lastly, check the cancellation fees and any other fees you may be responsible for.

Learn about the company’s customer service

When deciding between a provider for your home warranty, it really comes down to customer service according to Phil Edens, vice president of operations for Oncourse Home Solutions, a home warranty company. Edens recommends researching these questions:

• Who will the provider be using to service your claims?
• Does the company have a network of preferred providers or does it require you to have work done and file for reimbursement?
• How easy is it for you to get in touch with the warranty provider?
• Does it have live chat on its website?
• Does it offer 24/7 phone support?
• Does it have a strong web presence?
• Does it have endorsements from any major municipalities or utility companies?
• How is the company’s Better Business Bureau rating?

“The goal here is to identify a partner who stands behind their work and puts the customer first,” says Edens. “In general, if a provider makes it difficult to get in touch with them, they will be difficult to work with when you need them most.”

Finally, see what other people are saying. Check out the Better Business Bureau for reviews along with what customers have to say on our reviews. Look for red flags like frequently denied claims, poor customer service or inexperienced contractors.

If you're seeing the same complaints over and over, that's a sign to steer clear. On the other hand, if most people are happy with the service, the company is probably a safe bet.

» MORE: How to buy a home warranty

6 reasons to get a home warranty

While a home warranty may not be suited for everyone, there are plenty of benefits to make it worthwhile for a lot of homeowners. Here are a few reasons to get a home warranty:

1. Provides peace of mind: For many homeowners, the cost of replacing an appliance can be stressful. But with a home warranty, you don’t need to worry about when the next system or appliance in your home will break down. As long as the item is covered in your plan, you’ll only pay the cost of the deductible.
2. Offers a predictable budget: Unexpected home repairs can mess up your budget. With a home warranty, you're paying a predictable monthly or annual fee, making it easier to plan your expenses.
3. Saves time and hassle: Scouring online reviews to find a decent repair service is stressful and time-consuming. Most people don’t have time for that. With a home warranty service, the provider has a list of vetted contractors it will send you when you file a claim.
4. Increases home value: If you're looking to sell, a transferable home warranty can sweeten the deal for potential buyers. It’ll offer appliance and system coverage so buyers don’t have to worry about potential breakdowns.
5. Covers what insurance doesn't: While homeowners insurance covers you for things like fires and theft, it doesn’t cover malfunctioning appliances or systems. With both insurance and a warranty, your home will be covered for a variety of potential mishaps.
6. Protects older homes: Older homes are more likely to have outdated appliances and systems. And the cost of replacing all of these items can quickly add up. If anything is more than half its life span, there’s a good chance it’ll need to be replaced in the near future.

Who should get one?

Not everyone needs a home warranty. For instance, if you purchased a newly built home, it should come with a builders warranty — and all the appliances and systems should be brand new. Similarly, if you bought a recently renovated house, those items should still be under the manufacturer’s warranty.

Here are some instances when it makes sense to invest in a home warranty:

• First-time homeowners: If you're a newbie who's used to calling a landlord for every repair, you might feel uncomfortable maintaining all these systems. With a warranty, the provider will send over a licensed contractor to tackle any issues.
• Homeowners who don’t like DIY: Not all of us are born with fix-it skills. Consider a warranty if DIY repairs make you nervous.
• Owners of older homes: Unless an older home was recently updated, it likely has outdated systems and appliances. If so, those will probably need to be replaced sooner rather than later, which can be costly.
• Home sellers and buyers: Sellers can use it as a selling point, and buyers can gain a sense of security when moving into a new place.
• Landlords: A home warranty can save you from those dreaded midnight calls about a broken water heater if you own a rental property. It’s also a good idea if you don’t live close to the property. Instead, you can rely on the company’s contractors to handle any repairs.

» LEARN: Are home warranties worth it?

Bottom line

Home warranties can be a smart choice for homeowners, especially if you have older appliances or systems. To pick the right one for you, know what you need covered — appliances, systems or a combination of both. Price out at least three plans and don't forget to factor in add-ons and deductibles. Don't skip reading customer reviews either, which can be revealing about a company's reputation.

Home warranties don't usually cover preexisting conditions, so consider an inspection if you're not buying during a real estate transaction. They also have coverage caps, which limit how much they'll pay for specific repairs or replacements.

Always read the fine print in sample contracts for coverage caps, exclusions and all those little details.