What do you think about the home appliance insurance that can be added onto your monthly mortgage payment? I know that air conditioning/heating problems can amount to a lot of money if they need replacing, etc. and was wondering if this would be worth looking into.
A Savings Account Rather Than Insurance
Appliance Insurance is never a bargain. Any modern appliance built today (and automobiles, too) will last long enough for you to get your money's worth. Most appliances (or autos) will break down during it's warranty period; this is called "infant mortality", and will be covered by your store or appliance guarantee. Further, and increasingly, the unit will fail more and more at the end of its life span; this is the time to decide on repair or replacement.
If you were concerned about paying for repairs or routine maintenance, you would be better off to just put a dollar per week into a savings fund that you will not raid for more immediate needs (like food, vacations, etc.). You will find this is cheaper than the cost of the appliance insurance premiums.
When your appliance needs attention, you just dip into the fund to pay for it. You should budget at least a dollar per week for each appliance you are concerned about (stove, oven, hot water heater, garbage disposal, home heater/air conditioner, refrigerator, washer, dryer, etc.). As you can see from the list, this can be as little as $10 per week. You should budget more per week for your autos.
Insurance Pays Off
I recently bought a condo and all of the appliances were 12-25 years old. The inspector said they all worked, but all of the appliances would need repair or replacement within a couple years. I decided to opt for the insurance. I pay $150 a year, which covers everything from my refrigerator to my A/C. I was so glad I had it when 3 weeks after moving in my A/C, broke. It was a $600 repair that ended up costing me nothing.
If the appliances you have are fairly new and in good shape, I would save my money and fix them as they break, but if you are like me and have very old appliances it is worth it. When my refrigerator breaks, they will replace it for free. Even my 25-year-old A/C will be completely replaced for free. That would cost me about $2500 otherwise.
My only words of caution are to choose the insurance company carefully and read the entire contract. Some things are not covered 100%, but most are in my contract. My company even replaces my water filters for free and drains my water heater every so often. Another plus, is my company guarantees to come out and fix or replace my appliances within a certain period of time. No more worries about finding a service company at the last minute.
Things to Consider
I am a landlord and own several rental properties. That means I own several sets of appliances.
I have been offered these contracts several times. After examining them I have come to the conclusion that they are not worth it, for several reasons:
1) The early destruction of an appliance before it's normal end of life (by fire, flood or lightning strike) is covered by your homeowners insurance.
2) The normal life span of an appliance is 15 to 20 years. By the time the appliance needs replacing, you have paid more in premiums than the replacement cost.
3) There is usually a deductible for repairs. Most repairs will be less than or right at the deductible level. Which means that you are likely not to collect much on repairs.
4) Finally, these insurance contracts are designed financially to favor the insurance company, not the consumer. Let's face it, they are in business to make money.
A better bet is to buy a good book on appliance repair and learn to do some basic repairs yourself. Even if you don't learn to repair everything that breaks, you will be able to talk knowledgeably to the repairman.
Technically It Is A Warranty Not Insurance
I used to work for American Home Shield, which is a home warranty company. Technically the coverage on the appliances is a "warranty" not insurance.
After working at AHS for several years I have unique insight into this. These companies charge anywhere from a couple hundred to over a thousand for this warranty. All appliances have to be installed properly, regularly maintained and repaired by licensed technicians. If not you can kiss the warranty company paying anything good-by. These warranties are not worth it unless you have new appliances, know they were put in properly and maintain them.
Example of getting screwed by a home warranty company. Your electric water heater springs a leak on Friday morning, so you call the warranty company to send one of their techs out. You get a call Friday afternoon to schedule an appointment. The soonest they can get you in is on wed of next week. So you don't set the appointment with them and call the warranty company again. They tell you they will call other companies in your area and get back to you. Four hours later you haven't heard from them, so you call back. They still haven't found another company that can come before wed, but they have 20 other companies to try. You offer to help call around, but they tell you no, they have certain procedures to follow. Saturday morning you call them again. They tell you sorry, we didn't find another company you will have to stay with the one you started with. So you call that company again and find out they don't work on Saturday.
Monday rolls around and you call the company to schedule another appointment. By now they can't schedule you in until Friday. So you take it.
You spend the rest of the week mopping up the 50 gals of water out of your basement and calling your homeowners insurance to report the damage to the carpeting and walls in the basement.
Friday finally gets there. You take off work to wait for the tech to get there. He pulls in the driveway at 3:30 p.m. and tracks mud all over your living room carpet. He takes a 5-second peak at your water heater and calls the warranty company. He explains to them what he sees and leaves.
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Not having any clue as to what is going on you call the warranty company. After waiting on hold for an hour you get through to the authorizations dept. They inform you that the electrical to your 25-year-old water heater was not installed properly so they will not pay to replace it. You will have to foot the bill yourself. Oh, by the way you still need to pay for the service call for the tech to come out. That will be $45. You argue with them for awhile but lose in the end. You call back and get the service department. You find out you can have a second opinion, but if the second tech agrees with the first you will have to pay another service fee. You say ok and have another company come out almost a week later. They call in and get ready to leave. You stop them and ask about the water heater. They tell you that the wiring is improper. So you end up paying $90 for two techs to come out and tell you that it was installed wrong by the licensed tech 25 years ago. And you spend another $200 - $500 to replace the water heater and you have to send proof that the water heater was replaced or the warranty company will not send anyone else out to look at it if it breaks down.
Most cases are not nearly as awful as this situation, but it will still cost you the same.
People in the authorization dept of some companies are paid according to how many claims they deny to improper installation or improper maintenance. In some states the seller has to provide the warranty for the first year. After that cancel it and save the money to replace or fix the appliances when they break down. You will save a lot in the long run.
Insurance Always Not Helpful
We had appliance insurance added to our monthly home mortgage payment. Most of the repairs were not covered because of non-normal wear and tear. The prior owners did not maintain the appliances according to the repairman. Therefore, for us it was a waste of time. I hope that other homeowners had better luck.
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