Are Home Warranties Worth It?

One of the biggest shifts that happens when you go from renting to owning a home is that you’re responsible for the maintenance and upkeep. If the dishwasher dies or your water heater goes out, you’ll have to foot the bill and get those appliances fixed.

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That’s why for many people, investing in a home warranty service is tempting. You pay a monthly fee and if something breaks, the home warranty company pays to fix it for you.

But is a home warranty worth the price tag? That really depends on the company you end up going with and your contract. If you do your research, then paying for a home warranty could be worth it.

If not, you could end up wasting a lot of money. Let’s look at how you can recognize the difference.

What is a home warranty?

A home warranty is a service that pays to cover the cost of repairs if an appliance or system in your home breaks. The specific items covered by home warranty companies can vary, but most cover the following appliances:

  • Dishwasher
  • Washer and dryer
  • Oven
  • Refrigerator
  • Electrical system
  • HVAC
  • Plumbing systems

If you choose to buy a home warranty, you’ll pay either a monthly or annual premium. Then if an appliance or system breaks, you’ll contact the home warranty company to have them send a technician to your home.

The technician will either repair the item themselves or recommend that the item be replaced altogether. As long as your premium is up-to-date, you won’t be responsible for paying anything more than a one-time service fee.

How much does a home warranty cost?

The total cost for a home warranty can vary depending on the size of your home, where you live, and the type of coverage you want. But according to Consumer Affairs, the average costs range between $300-$600 annually.

Or, if you prefer to pay monthly, you can expect to pay between $25-$50 per month. One-time service fees typically range between $50-$100. However, it could end up costing you more if you want enhanced coverage for a pool or septic system.

Are home warranties worth it?

Many homeowners purchase a home warranty because of the added security they provide. Nobody likes the thought of unexpectedly having to pay thousands of dollars for a damaged roof or broken appliance. A home warranty will often pay for itself if even one major appliance breaks down.

However, a home warranty is only worthwhile if you partner with the right company. Many homeowners have paid the monthly or annual premium for years. But then, when an appliance or system breaks, they realize the contract terms don’t require the company to pay for all of it.

So if you’re interested in getting a home warranty, make sure you do your homework first. Contact several home warranty companies about their plan coverage before selecting one. And check sites like Consumer Affairs and the Better Business Bureau to find out what kind of experiences other customers have had with that company.

Pros and Cons

Let’s look at some of the biggest pros and cons of home warranties.

Pros

  • Peace of mind: If you live in an older home with dated appliances, purchasing a home warranty can provide some much-needed peace of mind. This is especially true for individuals who don’t have a substantial emergency fund to cover unexpected expenses.
  • Potential savings: If one major appliance or system breaks, you’re going to be happy you have a home warranty. The cost of repairs could end up making up for your annual premium.
  • Trusted technician: For many people, it’s hard to find a contractor or technician you like. Home warranty companies will often take care of this for you and provide you with a licensed and trustworthy technician.

Cons

  • Coverage limits: Most home warranties do come with coverage limits. That means if an appliance breaks and the cost to fix it exceeds your coverage limits, you’ll be responsible for paying the difference.
  • Claims could be denied: Due to the fine print in the contract, it’s possible your claim could be denied altogether. For instance, some home warranty companies state that they don’t have to pay to fix an appliance that hasn’t been properly maintained.
  • Limited control: If an appliance breaks, the technician your home warranty company sends out will determine whether it can be fixed or if it should be replaced. In all likelihood, you’ll have very little say in that decision. And if the company does end up replacing it, you won’t get to choose the make and model of your new appliance.

Things to Consider Before Buying a Home Warranty

Purchasing a home warranty could be the right decision for you. But first, you’ll want to do a cost-benefit analysis. Estimate the average cost of replacing your appliances and compare it to the annual home warranty premium. This can help you determine whether it’s the right decision or not.

It’s also important to read through the terms and conditions carefully. Check to see if there is any fine print that would disqualify you from coverage. This will help save you from any unpleasant surprises down the road.

And finally, pay close attention to the coverage limits. For instance, if a home warranty comes with a $2,000 coverage limit and the repairs cost $3,000, you’ll be responsible for making up the difference. This should be another factor that weighs into your final decision.

Bottom Line

A home warranty could be a good choice due to the peace of mind it can provide homeowners. Just make sure to research the company first and check its rating with the Better Business Bureau. There are plenty of options available to you, so shop around and consider all of your options first.

FAQs About Home Warranty Coverage

Is a home warranty the same thing as homeowner’s insurance?

No, homeowner’s insurance covers damages to your home. For instance, if your home were damaged in a flood or fire, your homeowner’s insurance would pay for the repairs. A home warranty covers problems with your systems and appliances.

What does a home warranty cover?

A home warranty typically covers major appliances like your dishwasher, wash and dryer, over, and refrigerator. It will also often cover major systems like your HVAC and plumbing. Things like a sprinkler system, pool, and spa will not usually be included in the coverage.

How long does a policy last for?

A typical home warranty policy lasts for one year. After that, you can decide whether or not you want to renew the policy.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about a variety of personal finance topics including student loans, credit cards, investing, building credit, and more.