Home Warranties

So I’m thinkin’ about gettin’ a home warranty. We declined to renew the one that the previous owners of our house had but now the gas furnace is actin’ up and Seattle’s cold. We were just gonna repair the furnace, but then we started revisiting the idea of the home warranty (it’s an old house, 1918, and I’m sure something else will come up…).

Anyone have any recomendations or stories? We’re looking at American Home Shield, which I guess is the biggest, and Fidelity, which looks less reputable to me, but I’m really not in my element with this stuff.

I had one, but we let it lapse. I can’t remember exactly why anymore, but I suggest you read the small print. It helps if something unexpected happens, but if I remember correctly it wasn’t going to help us with stuff like say, migrating from galvanized pipe to copper, even though the galvanized stuff was all rusted shut. As I remember, we just made a decision based on estimates about how much could go wrong that was covered and the price of coverage. For us, it looked like going it alone was the better choice. YMMV. Good luck!

I don’t know specifically about home warranties, but I’ll put in my usual piece of advice regarding any sort of insurance: unless you are insuring against a catastrophic loss from which you could not recover, you should not be buying insurance. It’s possible that the bet will go your way, but the insurers make money based on the fact that most people lose. It makes sense to lose some money if you’re insuring against something you couldn’t afford to suffer (like getting cancer or your house burning down), but it doesn’ t make sense to lose money insuring against something you’d be able to pay for anyway.

I agree with you on this particular piece of advice but I think your characterization of the insurance industry as “making money based on the fact that most people lose” treats the whole concept as if it’s just a fancy casino or something and provides nothing beneficial to society.

Obviously, most traditional forms of insurance are necessary (whether you regard them as a necessary evil or beneficial is up to you), but some types of insurance are bets that are as bad or worse than plunking your coins into a one-armed bandit. Dread disease insurance comes to mind. Home warranties I don’t know about. At least in my experience, the question usually doesn’t come up in terms of the buyer purchasing it. Rather it’s something the seller decides to offer as an incentive.

It is a business, after all. It may feel like that but they are out to make money. You can make it feel all warm and wonderful with advertisements about the being the “Good Hands” people and what not, but it’s really just a business like any other.

Derail! I don’t mean to bash the entire insurance industry. Some types of insurance–like business, home, medical, and auto, which I would guess make up the vast majority of the market–provide (IMO) a service to society (even that is a generalization, of course; selling auto liability insurance is a valuable service, but selling towing insurance along with it is just a moneymaker). They allow people to pool unacceptable risks at an acceptable financial level, and allow for smooth operation of the nation’s businesses. And obviously, people buy whatever insurance they’re comfortable with. If someone wants to pay $5 a month to cover up to $300 of towing costs per accident, that’s great for them and I’m glad they found a product that makes them happy. Me personally, I might do the math and figure that’s a terrible bet. To each their own.

My point was just that most insurance contracts, even the smart ones, are money-losing gambles for the consumer. Therefore, you shouldn’t make that wager unless you’re insuring against an outcome that you could not afford to deal with on your own. Making the wager against an expense you could afford but which would be inconvenient–like the cost of replacing your furnace–is a bad idea, because you will most likely end up paying the cost of the furnace and then some in premiums, making you worse off in the long run. If your concern is that the furnace will go out and you won’t have the money to pay for it right that second, just open a home equity line on your house for use in emergencies. When the furnace goes, get it replaced and pay back the loan with regular installments, the way you would have been paying your warranty premiums.

As an aside, I think some forms of insurance are pretty clearly a you’re-bad-at-math racket, just like the state lottery. Buying insurance from rental car agencies, or buying extended warranties on your TV set, or buying a home warranty–that stuff is all just poor financial sense, at least in my opinion. Obviously it’s legal and I’m not saying the places should be shut down or whatever, but they’re not what I would call a service to society. They’re making money off the fact that people don’t or can’t figure out the math.

most insurance companies make little to no money on premiums vs payouts. based on some buffet reading last year, i actually have the impression that a 0-1% profit is considered ideal. insurance companies make their money by investing it between the time that they get premiums and make payouts.

i mostly agree with ryan. if you can afford the payout on something, it isn’t worth getting insurance for. insurance is for emergencies. the only reason that i see to get these mini-policies is if you have something that makes you statistically much more likely to take advantage of the insurance (like buying a no-questions-asked replacement policy if you have kids or something).

Well I am a bit biased since my dad is in the insurance business.


American Home Shield’s warranty is $324 a year, and the others I’ve seen are priced similarly. Replacing a furnace is much more than that (though I doubt they would cover replacement.) Minor home repairs, especially on a house as old as mine, could quickly add up.

again, make sure to read all the fine print. i had a home warranty on the house i purchased, and there was pages and pages describing what they would and wouldn’t cover, and how much they would cover and what the deductibles were.

i actually did end up taking advantage of mine. my main circuit breaker went bad and i had an electrician come fix it for $50 deductible. it would have cost $500-600 to get it done normally. though, without the presense of the insurance, i would have stongly considered turning power off at the box and replacing it myself.

interesting story about that, also. the guy actually replaced the main breaker without turning the power off. i wasn’t there, so i missed how he did. crazy electricians.

This is definitely true, although I think most insurers actually pay out more like 96% of their premiums, not 99-100%. There was a time back when the stock market was going crazy that at least one insurance company was charging less in premiums than it was paying out (Progressive, IIRC), but that’s obviously not the normal case. Most insurers keep some portion of their overall premiums–and remember that that’s after overpaying on a select few high losses. That means the average joe / mean case loses significantly more than 4% (for example, I’ve been paying auto insurance for 21 years, and renter’s/homeowner’s for 10, and never once made a claim on either).

As for the $324 furnace, I’m sure you’re right that the company wouldn’t pay to replace the furnace. Certain things are not covered, there’s deductibles, caps, what the insurance company considers the “reasonable cost” to do work, etc. It’s not as simple as saying “My new furnace would cost $500 and this home warranty is $324, so that’s like $176 in my pocket!”

We had an American Home Shield warranty (provided by the sellers) when we bought our house in October 2003. About four months later, the furnace quit working, so we called them up and they sent out some guy to look at it. He replaced the induced draft fan and left. A few days later, we noticed a huge puddle at the base of the furnace, so called up AHS again. They sent out someone from a different company who discovered that the first guy hadn’t tightened the hose clamps on the fan and so it was leaking condensate. He tightened that up, and then the furnace kept kicking out again. We went through about four more visits until AHS said that the problem was our 2" flue was too small (ignoring the fact that it was perfectly fine for the first 10 years the house had this furnace) and the we’d have to replace it with a 3" one at our own cost (about $400).

It wasn’t until I called them up and screamed at a couple of service reps and supervisors that they agreed to send someone from a third company out to provide a second opinion (their first choice had been the bozo who hadn’t installed the fan correctly in the first place). The second and third guys spent a day arguing in our basement before admitting that neither had a clue and recommended to AHS that they replace the furnace. AHS still required us to replace the flue, and the furnace they first tried to replace it with was an 80% efficient one (the existing one was 90%). The guy installing it had to argue with AHS that he needed the 90% efficient one because it was a PVC flue.

The bottom line is they did replace our furnace eventually, I had to scream myself blue in the face several times with their reps to get them to agree it was their problem, we still had to drop $400 on a flue we shouldn’t have needed, we had to use the companies that they had contracts with (none of which were ones I would consider the best ones in the area), and we spent a total of about five days without heat in the middle of winter (the one guy did bypass one sensor, without which we probably would have gone a month without heat trying to get AHS to fix the furnace). In the end, it cost us less than a new furnace, but we didn’t renew when our first year was up. It was too much of a hassle getting them to fix anything, and we were stuck using a lot of generally poor repair folks.

Yeah, now that you mention it, that was pretty much my experiance, too. No more home warranty for me.