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A sputtering heating system or leaky pipes can keep you up at night. Home-warranty companies claim to offer peace of mind.
Unlike homeowners insurance, which covers damage or loss after an emergency or disaster, a home warranty typically lets you repair or replace your home's major appliances, water heater, plumbing, wiring, or heating and cooling systems for one year due to normal wear and tear.
The warranty company contracts with local service technicians, so you can't choose your own. Most companies have a 24-hour call service to handle requests. (If emergency service isn't available and you call another company, you might not be reimbursed.) The annual cost is about $400 to $500, and if the repair is covered by the contract, you'll pay about $65 for a service call. Pre-existing conditions and improper installation generally aren't covered.
In 32 states, home-warranty companies must be licensed or registered by the state's regulatory agency, says Stephen K. McDaniel, a spokesman for the Service Contract Industry Council, a trade group. That helps ensure that contracts will be honored if the company goes bust.
Bottom line. Peace of mind isn't worth the price. For most people, it makes more sense to put money in a home-maintenance fund. The exception: someone who's selling a house and wants to boost the buyer's confidence. About 25 percent of sellers offered potential buyers a warranty over a 12-month period, according to a recent study from the National Association of Realtors. If you're buying, be sure the warranty is paid in full; know the responsibilities, limitations, and exclusions; and check on the contractors the company uses.
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