What are the major disadvantages of purchasing a home warranty?
Some home warranties are problematic, more because of risks than disadvantages. Remember that anyone selling a warranty - or any kind of insurance - is making more money than they pay out. So most customers will be worse off, not better.
Make sure you understand:
- what is covered, and what is not
- what deductibles and exceptions there are
- what might cause a change of rates
- whether home improvements and new appliances are covered
- how to get service and make a claim
- will items be repaired, or replaced?
- if items will be replaced, will you get a new unit, or a refurbished one?
Also, make sure the company offering the service is reputable, has been around a long time, is in good financial shape, and is good at fixing things!
If you know you are going to be on a fixed income with low savings for a while, then the monthly fee of the warranty might be better than paying when your AC or refrigerator breaks down. On the other hand, if you can pay for repair or replacement yourself, then a home warranty is likely to cost more, over time, than it is worth. And it will limit your options when it's time to get something new, as well.
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