Buying a new home warranty is much like buying an extended warranty on your refrigerator or car -- there are a lot of questions to be asked.

Many states have different laws regarding home warranties. For example, in California, state law allows you to sue builders for general defects for up to four years after the home is completed. You can also hold the builder liable for latent defects on major components for ten years. Why would you need the warranty if the law says the builder must pay?

We are starting to see many warranty products being offered on existing homes. You should be cautious with these products.

Start by checking with your state's Department of Insurance. The department regulates the industry. They will be able to tell you whether or not a particular home warranty company is in compliance with the state regulations.

Many advisors suggest that you should waste your money on warranties for resale homes. These warranties include standard coverage for the home's heating, electrical and plumbing systems. Your kitchen appliances are often part of the standard coverage. You can often add your air conditioner, pool, well pumps, solar components and root coverage for an additional cost.

You will often find that sellers offer the warranties. The warranty is by no means an acceptable substitute for a professional home inspection. If the seller pays for the insurance, then fine. But if you are asked to, you need to think hard about it.

Not only will you spend a couple of hundred of dollars for the plan, you will pay around a $50 deductible every time someone comes out to look at a problem.

Most plans also limit how much they pay to correct problems. You are better protected by having a professional property inspector inspect the home thoroughly and uncover the problems for you. The inspection is a better usage of your money.

But the plans are popular. Eighty percent of existing home sales include a warranty in California. If you are thinking about taking out a home warranty on your new purchase, you should ask your friends and family for referrals. You are looking for a company with a good track record of happy customers.

Make sure you shop around. Look at price, service fees, coverage and company stability. Make sure you look at all of the costs that you will have to pay and the coverage amounts. Be certain that the coverage is applicable to your home. You don't want the policy to be voided because your home is too old.

If you want to purchase warranty insurance, then go ahead. Some people do benefit from the coverage. Like all insurance, the company is betting that you won't ever make a claim. If you don't, you've lost your money.