Are those home warranties really necessary? Some say no.
Chances are you have automobile, flood and homeowners or renters insurance to cover the big calamities, the sort of things that could wipe you out financially if your home catches fire or you get into a bad wreck. But how about coverage for your new washing machine? Or hot water heater? Is it worth it?
CenterPoint Energy, the Houston utility that distributes electricity and natural gas in the Houston area, has teamed up with the British company HomeServe to sell nine home warranties covering water heaters, gas lines, central air conditioning and other household systems. They can be bought individually for a monthly subscription or all at once for $84 a month.
But how often do problems really come up? And how do you know which things to cover?
The water heater replacement and repair policy, for example, covers broken water heaters. For $9.99 a month, consumers can call a technician for repairs or replacement if necessary. But the annual $1,100 benefit won’t cover the entire cost of a new 40-gallon water heater, which CenterPoint said can run as high as $1,448.
The warranty is tightly written, too, not covering damage from flooding, fires, explosions, earthquakes or drought — essentially, all the things Texans worry about these days. Nor does it cover the cost of making adjustments if the new heater won’t fit in the existing space, damage caused from restricted lines or specific parts including interior doors, exhaust venting and expansion tanks. What’s left?
Many warranty programs are designed so narrowly, with significant exclusions and other rules, that it’s difficult for consumers to use their policies when something goes wrong, consumer specialists say.
“Their goal is to not cover things usually,” said University of Houston consumer law professor Ryan Marquez. “They earn money by not paying out.”
Consumers also have to ask themselves what the chances are that any of these will be necessary. In the case of gas lines, not very often, according to the crowdsourced service directory Angie’s List, which estimates the likelihood of gas line repair — another plan is on sale from CenterPoint for $5.49 a month — is less than 1 percent any given year. For water heaters, Angie’s List estimates the average lifespan of a traditional tank-style water heater is eight to 12 years.
The best way to cover emergencies is to self-insure by putting money aside each month, Marquez said.
That is the advice of every consumer finance columnist, but it’s not realistic, said HomeServe spokesman Myles Meehan. Consumers save for family vacations and Christmas, he said, but not so much for home repairs. A recent HomeServe-sponsored survey found 18 percent of homeowners have no money set aside for emergency repairs, a figure that increases to 31 percent for homeowners with household incomes under $50,000. Meehan said monthly plans offer options for people without a lot of cash reserves.
But you can quickly drain whatever cushion you have in your budget by buying protection plans for every appliance and mechanical part of your home and still come up short if the problem isn’t covered under the warranty or the benefit isn’t enough to cover the replacement cost.
Emergency repairs are inevitable, so maybe it’s time to commit to an emergency fund. Open an account and call it Christmas if that helps and start contributing. And if you accumulate more than you need over the course of a year or two, you’ll have a more enjoyable problem on your hands.