Thursday, August 28, 2008

Are the gas company service warranties worth the money?

This is something I am debating: should I be paying for a service warranty for my home appliances?

My ex always kept a warranty on the furnace and hot water heater. It was one of those things he set up and I really didn't question. To be honest, it came in handy - our furnace broke down on Thanksgiving... two years in a row. (It seems the furnace, much like me, is not fond of that particular holiday.) So, back when I thought I was having problems with the hot water heater I called the gas company - only to be told that the warranty expired when my ex put the utilities in my name. Frustrated, I put the warranty back on.

But I just got my gas bill... and now I am starting to wonder. Do I really need it? It is an additional $12.95 a month added to the already high bill of heating a 150+ year old house. I hate having that expense, but on the other hand, not having hot water or a working furnace simply isn't an option when you are a landlord. So what to do?

Well, here is what I decided -

If I absolutely cannot be without these basic services, then I need to insure their working either by purchasing insurance (the warranty) or self insuring.

A warranty really is just insurance. It is basically a policy that means that I can call someone and have them fix these appliances at low cost. The question is, does the cost outweigh the benefits?

Ideally, what I would like to be able to do is self insure. Rather than sending off $155 yearly to the gas company, I would rather have the money I need to cover repairs sitting (and happily earning interest for me) in a savings account - the problem is that right now I don't have that kind of money. I did a rough search online and a new furnace would run somewhere between $1,500 and $2,000. Assuming that the hot water heater and furnace wouldn't go out at the same time and that the worst case scenario is that I have to completely replace the furnace, I would say somewhere in the neighborhood of $1,750 to $2,000 in savings would be needed to me to comfortably self insure.

For now, I think the best thing for me is to continue to pay for the warranty - for this year at least. My emergency saving account was hit pretty hard during the divorce. Even though I am going through financial difficulties right now, I am still working on building up those savings again. In addition, I am working hard at paying off my credit card. No, I don't mean that I want to put repairs or new appliances on a newly paid off card, what I mean is - if I pay off my credit card I can put that monthly payment into my savings, growing my emergency fund even faster. If I knew I had $1,750 - $2,000 in available savings and no credit card debt, I could cancel my warranty.

Now, here's the trick though - you can only cancel once a year - otherwise they auto-renew you. So, what this means is that I need to set up a date on my calendar to review where I am at in May. (I have to cancel in writing one month in advance if I don't want to be stuck paying extra fees.) In May I can make the decision to keep the warranty for another year or begin self insuring. I hope that by then I will have things a little more calm in my life and be able to stop relying on the gas company for their warranty, but if I do then I will keep it and renew again the following year - again making sure to set up a reminder note for May.

One thing I won't do though is add a warranty for small appliances like my dishwasher, refrigerator or stove. Let's face it, I can live without those things for a few days if necessary. Besides, I am learning that sometimes I can repair an appliance myself (and I did fix the tenant's refrigerator) plus my friend David said he just found a great appliance repair person in our neighborhood. For that I will self insure.

Warranted Extra Reading:

My Home Repair Story - Replacing the Freezer Seal on an Admiral Freezer

CSB News - Are Extended Warranties Worth the Money?

Associated Content - Extra Warranties for Major Appliances - Are They Worth They Money? Buying Extended Warranties on Appliances

Photo by: Kimberly Hurst

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