Is there a good reason to renew our home warranty?
February 21, 2013 7:04 PM   Subscribe

My boyfriend and I bought a house together last April, which so far has proven to be pretty good idea. Along with the bazillion other really expensive things involved in buying a house, we purchased both homeowner's insurance and a home warranty shortly before the close of escrow. I might have been misunderstanding the legalities of everything, but I remember somehow arriving at the belief that both homeowner's insurance and a home warranty were required for the first year; however, renewing the warranty was optional.

So my question now is, should we renew? I've done some basic googling and I understand that homeowner's insurance and the home warranty cover different things, and my first instinct is to think that it could hardly be a bad thing to have insurance that will pay to replace our water heater if it dies. That's new homeowner financial panic talking.

But in general, I am suspicious of insurance in general, and suspect deep down that the whole thing is kind of a scam. I decline extended warranties, I carry only state-mandated minimum amounts of insurance on my car, and I never buy AppleCare. I just can't believe that for-profit insurance companies or warranty companies have my best interests in mind. They make money by taking in more in premiums than they ever pay out, so they exist to take my money and give me as little as possible in return, right?

So. Tell me about your home warranty experience. Did you renew after the first year? If so, why? Did you choose not to renew? Why? Have you ever needed to use it? Did the exceptions to coverage make it basically useless?

If it's relevant, we live in the East Bay. Our house was built in 1929 and none of the major systems are what I'd call "new." The yearly premium for the warranty is $370.00, which probably doesn't sound like a lot but would cover a month of payments for the new windows and is a lot if it's paying for something that will never do me any good.
posted by jesourie to Home & Garden (18 answers total) 1 user marked this as a favorite
I just can't believe that for-profit insurance companies or warranty companies have my best interests in mind. They make money by taking in more in premiums than they ever pay out, so they exist to take my money and give me as little as possible in return, right?

Every for-profit enterprise exists to take it more than in expends. You talk about AppleCare, so you obviously buy Apple products. How do you think Apple came to be the most valuable corporation in history? By thinking of your best interests?

That being said, home warranties tend to be more hassle than they are worth. The companies can get picky about which servicemen you use and you still have a deductible. The general advice that consumer advocates give is to use the money you would have spent on the premium and keep it in a fund for home repairs. In a sense, this is a form of self-insurance.
posted by Tanizaki at 7:24 PM on February 21, 2013 [3 favorites]

I just can't believe that for-profit insurance companies or warranty companies have my best interests in mind. They make money by taking in more in premiums than they ever pay out, so they exist to take my money and give me as little as possible in return, right?
Yes, that's how insurance companies work--though I would quibble with "as little as possible," since insurance companies are often highly regulated. They do exist to make a profit, after all. Note that in many cases, though, they also insure themselves against unexpected losses, such as having to pay out more than they had anticipated.

That should be a clue that insurance isn't a scam. It's a profit-making industry, but even insurance companies are willing to contribute to other insurance companies' profits when they think it's in their best interests.

The reason is that insurance protects you from a loss that you can't afford to cover yourself and that would be catastrophic for you. Depending on your financial circumstances, you might choose a $500 deductible on your insurance, if losing more than that would be a real hardship, but you might choose $2000 if you could cover that loss easily. The $2000 deductible will lower your rates significantly. You could even go higher (though if you have a mortgage, there may be limits on how high your deductible can be).

If you could afford to lose your entire house and its contents and rebuild, without undue hardship, then you might opt to forego homeowner's insurance entirely. Otherwise, you'd better choose insurance coverage that would let you rebuild your dwelling affordably, and make sure you understand what your policy covers and what is excluded.

For home warranties, which cover expected expenses, things are rather different. I see them as more like paying a retainer to a doctor or lawyer in exchange for free or reduced rate service when needed. In such cases, where maintenance is expected on an irregular basis, due to ordinary wear and tear, I think you're better off doing as Tanizaki suggests and creating a home repair fund. The exception might be if you're living on the edge and an unexpected expense of $10,000 to replace your roof would be beyond your current means.
posted by brianogilvie at 7:42 PM on February 21, 2013

We did not renew our warranty. We also live in an old East Bay house. IIRC, our warranty didn't even cover major "systems" such as heating or plumbing - it really just covered the appliances that were there when we bought the house. And carrying insurance for my fridge and my oven just seemed silly.
posted by gnutron at 7:45 PM on February 21, 2013

Here's what I can tell you about home warranties, both as a buyer and seller of a house.

Seller: our real estate agent basically said that a warranty was expected, and would make the house more attractive. They conveniently could offer it as part of their selling package, and would deduct the cost automatically at time of the sale. I'm absolutely positive they got a kickback from the insurance company. Did it help or hurt? Dunno.

Buyer: The first house we bought came with a home warranty. It also had a dud hot tub, and we made it a condition of sale (and escrowed some of the $'s) that the tub be repaired. After the sale closed the selling agent called the warranty company, who then spent a rather remarkable amount of effort getting the thing working again. The only thing they didn't replace was the shell itself. It took them months because they decided it was the controller that was bad and had to get it custom-made. Once they'd replaced that they discovered the pipes were burst, and they had to replace those. Then something else. Rather than doing the whole analysis, they piecemeal'ed it bit by bit to get it working. We were in no huge rush with this so we lived with the visit from the repairman every other week or so.

The last house we had came with a warranty. During the coldest week of the year the heater died. We called the warranty company, who sent someone out ($50 fee), who then said they needed a part. Said part had to be ordered from Oklahoma. The part was available in our town and could be picked up that afternoon, but they would only order it from their supplier in OK. And it wouldn't be shipped overnight, but 3-day shipping. And they shipped the wrong part the first time, so it took another 3 days. Basically we had no heat for over a week because they couldn't be arsed to get the part that was in the same town. There was no escalating the issue. I eventually bought the part myself locally and had them install it.

The moral of the story is that if you don't care how long it takes to repair a home warranty might work for you. For critical stuff I wouldn't trust them. YMMV.
posted by Runes at 8:11 PM on February 21, 2013

I'm sure you're aware that often times (P/C) insurance companies don't make a profit on underwriting but do on the float, right? And there's the idea that brianogilvie mentioned: The reason is that insurance protects you from a loss that you can't afford to cover yourself and that would be catastrophic for you.

Most mortgages require home owners to have insurance. Your home is collateral for the loan. If your home burns to the ground the collateral, and any incentive to keep paying your mortgage, is gone.

See also car loans that require collision insurance.
posted by Brian Puccio at 8:17 PM on February 21, 2013 [1 favorite]

When I was realtor in San Francisco, I recommended that sellers offer a home warranty. There is no kick back. And when I represented buyers, I would usually pay for the warranty myself if the seller didn't provide. it.

They're definitely not required. For new homes, they're not worth the money. For older homes, they can come in handy. The big caveat is read the brochure and see what it covers. It's VERY limited. It's not going to cover a roof, for example, but it'll probably fix the fridge.
posted by shoesietart at 8:34 PM on February 21, 2013 [1 favorite]

Have you had to get anything repaired through your home warranty? We found that the providers that our warranty company was willing to work with were uniformly shady and creepy. At the time I was working at home and so I, a very tiny young woman, ended up greeting plumbers and heater guys from the next county over who frankly scared the crap out of me because the home warranty didn't cover anyone else. Furthermore, once the shady workers came over, more often than not the home warranty didn't actually cover all the services they claimed we needed, and then I had a fellow who scared me, inside my house, saying that the warranty didn't cover the service but he could do it for $250. In one case I had a magnet on the refrigerator stating that the person who'd given me the magnet could offer me the same service for $80, but I paid the $250 because I didn't want any trouble. Eventually I told my husband that he could damn well stay home from his job when warranty guys were coming because I didn't want to deal with them on my own any more.

At the end of our year you bet your bippy we didn't renew. It's so much nicer to be able to choose from all the available providers out there. I think our home warranty ended up costing us more than it saved us, all told.
posted by town of cats at 9:10 PM on February 21, 2013

Home warranties sound like gouging to me. The appliances should have their own warranties from their manufacturers.
posted by brujita at 9:20 PM on February 21, 2013

Our home warranty (a gift from our realtor) never managed to cover any of the things that broke in our 1929 house. (The sewer lateral was also vintage 1929. Sigh.) I would skip it. It's not important in the same way homeowners insurance is.
posted by purpleclover at 9:55 PM on February 21, 2013

IANARE, but I think there's some confusion going on between "home warranty," which I believe means "we might fix things that break in your house, if we can't avoid it and the hassle of dealing with us doesn't exceed your patience;" and "home insurance," which covers "my house burned down."

You probably want (and are probably contractually obligated to have) home insurance. I suspect that home warranties are like extended warranties at Best Buy: a huge moneymaker for somebody, and very unlikely to pay off for you.
posted by spacewrench at 10:18 PM on February 21, 2013

We did not renew our home warranty because I like being able to choose who fixes things in my house and who enters my house. We got our warranty from company called First American.

We did two repairs with the home warranty company and both of the service providers they sent were the worst customer service experiences I've ever had in my life. In the end, they did fix what was broken but only because I spent hours filing complaints and making repeated inquiries. Hours, I'm not exaggerating, I spent hours tracking people down. I also spent hours waiting at my house for people that never came, even though they said they were on their way.

The warranty company took my complaints but in the end it did very little to help me.

I felt that I'd rather go with my own service providers because I'd feel more confident about the quality of the repairs if any were needed and it would waste a whole lot less of my time hopefully.
posted by dottiechang at 10:30 PM on February 21, 2013

Most mortgages require home owners to have insurance. Your home is collateral for the loan. If your home burns to the ground the collateral, and any incentive to keep paying your mortgage, is gone.

This question isn't about insurance; it's about home warrantees, which pay for broken appliances.

As far as I can tell, these are roughly equivalent to the extended warrantees pushed at big box stores. Not worth it.
posted by mr_roboto at 10:38 PM on February 21, 2013

My wife and I bought a home last year. It came with a warranty that supposedly covered all sorts of things that might break, and I was mildly reassured but didn't pay attention to much of the fine print. Several months in, the handle breaks off of the over-the-range microwave. A bit of research reveals that the microwave is a defunct brand and old enough that the replacement part isn't available anywhere, so a new microwave will be required. There's not much money at stake here (a good OTR microwave can be had for $2-300 and I can install it myself), but for kicks I called to file a claim. On the basis of my description of the problem, the warranty claim was denied outright because, according to their interpretation of their somewhat vague fine print, handles are in a class with all other exterior parts of an appliance; all of which are considered "cosmetic" and not covered. I tried to reason that the microwave could not opened without a handle, and therefore should be covered by other contract language stating that parts necessary for function *are covered*, but they dug in their heels and upheld their initial denial. Searches on the particular warranty company turned up hundreds of accounts of similar experiences, and even an open letter from the CEO addressing widespread complaints, arguing that such exclusions are necessary in the home warranty business.

So I emailed both of the Realtors who'd handled the purchase of the house, both of whom worked for the same national firm, which in turn has a relationship with this warranty company, to tell them that I thought the absurdly useless home warranty was a stain on an otherwise positive home-buying experience. And then the sea parted. One of the Realtors asked me for a little time to look into it. She got in touch with some regional warranty sales manager person, and a couple weeks later I had a check in my hands.

My experience has convinced me that home warranty companies are not in the business of providing actual warranty coverage. They are in the business of selling homes. They are the Realtor's sidekick, and they grease the skids by providing the illusion of security, dispelling worries so that the buyer will sign the closing forms. They want to please their real customers, who are Realtors, not homeowners.

Finally, I want to direct you to Valkyryn's comment in another thread about warranties (bolded emphasis mine):
Losses have two fundamental characteristics: frequency and severity. This yields four categories:

(1) High frequency, low severity
(2) High frequency, high severity
(3) Low frequency, low severity
(4) Low frequency, high severity.

Categories 1 and 3 are just the cost of doing business or living life. Category one are the kinds of minor losses that happen all the time but can be avoided with care. Category 3 are minor accidents that don't happen often enough to be worth fussing about. Category 2 includes really bad ideas. Category 4 are special cases, rare catastrophes, that are unavoidable and hard to prevent but potentially devastating in their effect. You don't have enough money to pay for these most of the time, but you do have enough money to pay someone else to accept that risk.*

You deal with these kinds of risk in the following ways:

(1) Risk management practices and self-insured retention, i.e., take steps to reduce the frequency and build that cost into your budget.
(2) Don't do that shit.
(3) Self-insured retention.
(4) Insurance products.

Depending on exactly what it is we're talking about, this is a category 1 or 3 risk. It's not a category 4 risk. "Extended warranties," "home warranties," etc. of the sort you're talking about are essentially insurance products for what are ultimately category 1 or 3 risks. You would be much better off taking the money you'd spend on premiums for these programs and putting it into a savings account.

Proof? Homeowners' and renters' insurance policies, which do actually cover things like dropping your phone or losing your wedding ring almost always have deductibles, i.e., a mandatory level of self-insured retention, in the hundreds or thousands of dollars. Zero-deductible policies are sometimes available, if very expensive, but most carriers won't even write them, because first-dollar coverage is considered an "uninsurable risk," i.e., something for which it is impossible to write a viable premium, i.e., a category 1 or 3 risk.

*Note that whether something is "high severity" depends on how much money you've got. A category 4 risk for a marginally employed single mom or a local mom 'n pop might actually be a category 3 for a wealthy businessman or Wal-Mart.
posted by jon1270 at 2:56 AM on February 22, 2013 [4 favorites]

The seller gave us a home warranty when we bought our built in 1852 house. Turns out his realtor was the one who was supposed to pay the premium, when we made our first claim months later (washing machine broke) we found out he had never paid the premium (warning to people who buy homes and actually care about the warranty, check to make sure it's actually been paid as promised!). After haggling with that guy, it then took over a month of repair guys coming in and out, ordering parts, the repair not being done correctly, calling the warranty company a ton... it was a huge pain. Ultimately, the repair was finally done and we were happy to have paid $50 for it as opposed to buying a whole new washing machine. But we decided that it wasn't worth renewing the warranty after the first year because most of the things that needed fixing in our house weren't covered anyway.
posted by banjo_and_the_pork at 3:18 AM on February 22, 2013

Home insurance is a must.

Home warranties are garbage. Just get maintenance contracts on things like the heat and airconditioning.

IF you can afford it and are not in a flood plain get flood insurance or atleast a water damage addon to your homeowners insurance. Between the heating system maintenance contract and homeowners with water damage you should be covered.

Make a home repairs fund for small things around the house. The home warranty is a scam.
posted by majortom1981 at 3:38 AM on February 22, 2013

I will say that as a buyer, I did appreciate having the seller add on the warranty when we bought the house. You don't always have a good feel for your house going in. We had one plumbing issue within a few months, and just paid something like $10 for someone to come out and snake the whole drain. He was nice enough, came promptly, and helped us realize that we had some pipes that needed to be sealed as roots were getting into them. After a year, we didn't reup because at that point we felt we had a good sense of what was working well and what might need work in the future. We also had had a full year to save some money toward an emergency fund.
posted by bizzyb at 6:33 AM on February 22, 2013

I've had a home warranty and I renewed it for a couple years. If you don’t have a lot of extra cash, they are nice to have to cover repairs. We had a couple plumbing leaks, an air conditioner repair and a hot water heater repair that were all taken care of. What I didn't like is that you have no control over selecting the repair company. If you live in a small town, it’s not a problem since everyone knows everyone. In a big town, you never know who you will get. In our case, AC guy was great, plumber so-so.

The main reason we eventually dropped the warranty is because they will always try to repair first. At the point we dropped it, I wanted and could afford a more efficient air conditioner and hot water heater. I figured that with those replaced, most of our big ticket repair items were covered and looking back we were better off. Those first few years when we were broke and having issues, it was worth it to us. Oh, and I know there are big differences in the different warranty companies and what they cover. Some good, others not so much.
posted by iscavenger at 6:35 AM on February 22, 2013 [1 favorite]

Husbunny is an actuary for an after-market car warantee company. We have two paid for cars and neither one of us has a car warantee (although we can get them for cost).

As far as your home is concerned, I wouldn't renew it.

Most of the things they'd fix, are pretty cheap to replace, and once replaced will be much more energy efficient and prettier.

For example, hot water heater, pretty cheap to replace. If you want, go nuts and get a tankless hot water heater, and let the federal government, state government and your local utility subsidize it.

Energy star appliances, nice rebates available for nearly everything. Also, $$$ saved in lower energy costs.

Dishwashers are about $300 at the scratch and dent center. Check the Sears Outlet for fridges, etc.

Personally, I wouldn't renew the agreement. Instead bank the dough in a contingency account, because shit gonna break.
posted by Ruthless Bunny at 9:30 AM on February 22, 2013

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