How to Choose a Home Warranty Plan

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 myriad 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, including this one. 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.