So are home warranties a good idea? Let’s first define the difference between a home warranty and a home owner’s insurance policy. A home warranty is typically something that you might get as part of buying a house that already exists. It’s fairly common that a seller will pay for a portion of a home warranty or you can add a home warranty to the process of buying a house. Whereas a homeowner’s insurance policy, that is insuring the actual house, the dwelling itself.
So here’s an instance where a home warranty can be super helpful. Alright. So we’re here in Arizona and in Arizona air conditioning is, well, a thing. If, there is no air conditioning, especially in the summers, we would struggle. Especially if you just bought a home.
You wanna make sure that your air conditioning is top notch and running well. But what happens if you just bought a house and the air conditioning unit fails? It breaks. That would be frustrating to have to come out of pocket to get a very expensive thing like an air conditioning unit completely replaced. Home warranty can potentially cover the cost of getting that broken air conditioning unit replaced.
But there’s something that you should be aware of with home warranties. Most of them, they’re temporary. So if that same air conditioning unit breaks years down the road, it’s unlikely that you’ll be able to file a claim with that home warranty company to have them replace it. Most home warranties only last a year, maybe 2 years. Sometimes they simplest closing some months.
And after your home warranty expires, you’ll likely get some communication from the home warranty company asking if you want to renew. And you’re probably wondering, well, should I should I re up with this home warranty company? That may be the reason you’re read this post because you’re asking that question. 1st, let’s understand that home warranty companies make a lot of money. Now, they’re not evil.
They’re not bad. Okay? But we need to understand how they work. They typically will collect a lot more in home warranty payments than they do pay out in home warranty claims. It’s a very profitable industry.
And is what this tells us is that likelihood of you paying more towards home warranties versus receiving in home warranty claims, the scales are not balanced. Now the second point that we need to understand in answering that question if you should renew your home warranty policy is we want to ensure the big stuff and save for the small stuff. Get homeowners insurance. Get life insurance. Get disability insurance.
Get long term care insurance. But a warranty, that covers some of the small stuff. In an ideal world, you have money saved and set aside for that. So a week ago, we published a podcast, 5 crucial mistakes that people typically make with their finances, and one of those points was that people typically don’t have enough money saved. So having an emergency fund is extremely important and this could be lethal to your personal finances if you don’t have it.
Oh, man. Like, 6 months of expenses saved, will save most everybody’s financial plan if something were to happen, unexpectedly. Having a habit of saving money every single time that you get paid is a big deal because it will actually save you money from having to pay for different insurances or home warranties on smaller items. Again, we want to ensure the big stuff and save ourselves for the small stuff. So let’s answer that question.
Should you renew your home warranty? Well, if you’re in a situation where you haven’t been saving or you don’t have a ton of money set aside and you know that you’re living in a home that has some appliances, has an air conditioner that’s on its last leg, renewing your home warranty, that might be a good idea. Because if that air conditioner breaks over the next couple of months and you don’t have money set aside, you might be in trouble. But if you’ve had a habit of saving. If you’ve been wise with your finances and making sure you’re setting aside money every time you get paid, you’re probably not gonna need a home warranty.
You may not need to pay a company to help you with this emergency because you’ve been able to save for emergencies yourself. Alright. Let me simplify it. Here’s what I’m going to do. I’m withinside the system of purchasing a house.
And as part of the real estate contract process, a home warranty is coming with it. So I’ll take it. But I know that when I get that email or that phone call with a home warranty company asking me to renew, I’m gonna say, no thanks. I save money and I’ve put money aside for these particular things. Hopefully, this post helped arm you with enough knowledge that you can make a wise choice for yourself.
Reality is personal finance is nuanced. Personal finances should be made personal. So take this information from this post and evaluate it against your situation as you’re making a decision. Now, if you still want more information about personal finances or maybe you’ve got a question about what I’ve said in this post, you can bookmark this website or you can comment below .