Home warranty programs are becoming extremely popular. For a long time, they were swept under the rug and branded a scam, but it appears they’re becoming more mainstream, and their utility is being discovered. It’s estimated that around 2 million homes in the USA are now covered by various home warranty companies, with a recorded 42 active home warranty companies.

So, what’s all the fuss about? Why fork out hundreds of dollars a year on insuring your systems and appliances?

The money side of home warranties — save or lose?

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In the grand scheme of things, you may end up saving money. You may not. The debate between whether they will save you money is redundant. It’s not like you buy home insurance because you think it will save you money each year. Despite it being mandatory in most circumstances, home insurance is purchased because it offers peace of mind. It’s about capping potential losses from external events, not having no losses.

An analogy can be drawn on going abroad for a package holiday. You might find yourself in a situation where you book a holiday in an expensive city, and you’re unaware of what the restaurant prices will be. Many of us feel much more comfortable in purchasing the all-inclusive package. The point isn’t that all-inclusive will definitely be cheaper at the end of the holiday, it’s just to cap your loss. You don’t want to run the risk of there being extremely high prices. Furthermore, it’s well known in psychology that we are actually willing to pay more as a fixed cost if it means we’re not worrying about the variable cost. This is partly why Netflix, Spotify, and Amazon Prime is so popular — you’re afforded to potential to use unlimited amounts, and the cost will remain the same.

home warranty coverage limits:

The story is similar to home warranties. Whilst there can be coverage limits, they’re usually pretty vast. When covered, we feel although it simply doesn’t matter if 3 of our appliances break down tomorrow. Again, you may be charged a small deductible, which takes away from the complete feeling of it not mattering, but in relation to what it would cost to get a repairman (i.e., the deductible is a fixed amount), it’s simply a weight off your mind.

Ultimately, you could save a fortune over the course of a few months. If your swimming pool has issues at the same time as your HVAC, you might save $1000 in the space of a month. That may have been $1000 in repair costs that you simply couldn’t afford right away. But over ten years? Perhaps you’re about equal or even slightly down in overall premium payments. The core purpose is like any other insurance, to cap unexpected losses, and to take the weight off your mind. If you have $30,000 in savings and are simply not phased by anything breaking down, and you can replace it in an instant, it might seem that home warranties are not for you. But even in this instance, they may offer peace of mind elsewhere

Logistics — time well spent:

Home warranties offer peace of mind in regards to fixing the system or appliance — the logistics, not just the costs. The thing with home appliances and systems is that you don’t realise how important they are until one breaks down. If your fridge goes, suddenly you’re in danger of throwing out $100 worth of food. If the A/C breaks down in summer, you can’t sleep, and it might even be life-threatening for the elderly. When your boiler breaks down and you’re forced to take cold showers, there is little else more uncomfortable.

When one does breaks down, it can be a frantic fight to find an affordable repairman that’s nearby, available, and trustworthy. You’re vulnerable to taking a gamble too, as you’re in such a rush to repair the system that you’ll take the only man available, who has no online reviews. Home warranties are becoming popular with the middle class who simply don’t have the time or patience for organising such repairs.

Many home warranty companies have a single hotline for any breakdown. This is just one number, a single entity that will deal with your issue, listen, and organise a repair promptly for you. This is particularly helpful for the elderly who want such a peace of mind.

The biggest issue is that home warranties are only peace of mind when they’re transparent, honest, and reliable. The number of how many untrustworthy companies there are outnumbered the good companies, so finding the right one is the real challenge.

How many are home warranty companies active?

There are literally hundreds in America alone. They range from large to small, with some serving only one state, and others serving most of the country. However, if you go with the notion that larger, well-established firms are preferable due to their infrastructure in place (many contractors, reputation, etc.) then there are really only 30 to 40 companies that are worth considering.

How many in California?

There are only really 10 noteworthy companies operating within California. There is notably less choice than in many other large states, which is down to the stringent state regulations in place. All home warranty companies must be licensed and regulated by the Department of Insurance.

The average premium in California is around $320, which is around average for the US.

What to look out for?

As mentioned above, home warranties offer peace of mind… Until they let you down. It’s really important to pick a trustworthy company that you can build a relationship with and begin to rely on. These are some things that you should look for when choosing a company:

  • Select a handful of the company that is licensed by the state, and compare them with the following…
  • Positive online reviews (this is the best way to get a real picture of what happens)
  • Check to make sure the premium and deductibles are within your budget
  • Ensure coverage matches up to what you need and want
  • Read the fine print and avoid any company that tries to trick you with complex clauses
  • Try the company out on a rolling contract/pick one with a free 30-day cancellation to get a feel for it

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