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How to Choose a Home Warranty plan

By Angie Mohr CA CMA

Home warranty plans are becoming increasingly popular in North America. The purpose of a home warranty plan is to insure the homeowner against costs related to the breakdown of certain appliances or home systems. Navigating through the myriad of plans available can be a daunting process but following these steps can help you decide if you should purchase one and, if so, which one.

Step 1: Determine if you would benefit from a home warranty plan. In a notebook, tour your home and make a note of all of your appliances and major systems (such as heating, air conditioning, water heater, etc.). List the make and model, the approximate age and any recent repairs or upgrades.

Step 2: Review your risk of financial loss. Beside every entry in your notebook, write down the approximate useful life of the appliance or system. There are many websites on the web that have this information. Search for "appliance useful life" in any popular search engine. Subtract the age of the appliance or system from the useful life to get the approximate remaining useful life of each appliance or system. For example, if your refrigerator is 12 years old and its estimated useful life is 14 years, then the approximate remaining useful life is 2 years. In other words, you could expect to have to replace it 2 years from now. Starting with the appliance or system that has the smallest remaining useful life, note the approximate cost of major repair or replacement. This will give you a sense of how much money you should expect to have to pay out in repairs or replacements over time. If this amount is more than the annual premium of a home warranty that covers those appliances or systems, then it will be money well spent to purchase the protection.

Step 3: Choose a plan that's right for you. Home warranty plans differ from company to company and policy to policy. Read the fine print for each policy that you are considering. Understand which appliance and home systems are covered. Know how much each service call will cost you out of pocket. Find out what the restrictions are on payments from the policy. For example, if your policy covers all damage to your water heater except that caused by rodents, it may not help you if you know that you have mice in your basement. If your roof already leaks, there may be restrictions on certain policies that state that the leak must be new and not a pre-existing condition.

Step 4: Compare policy premiums. Once you have decided what's important to you in the way of home warranty coverages, compare the annual premiums for those policies that have the coverages that you need. As a tiebreaker for those policies that are comparable, telephone the companies' customer service lines to make sure that you can speak with a real live person without a great deal of effort. Companies that are difficult to get a hold of now will be even more so when it's time to make a claim on your home warranty. Only deal with companies that have above-average customer service.

Home warranties can be confusing but with a little planning and investigation, you will be able to find the one that's right for you.