Is a Home Warranty Worth It?
Home warranties can be a solid investment for some, but not all, consumers
Highlights
Home warranties are useful for some homeowners, but others might not need one.
You can expect to pay $300 to $600 per year for a home warranty.
Your property’s condition helps determine whether you need a home warranty.
Home warranty companies offer different coverage options.
It seems like a no-brainer to buy a new home warranty to offset the cost of expensive or unexpected home repairs. Better safe than sorry, right? For many homeowners, home warranties are worth every cent. But for others, a home warranty may not be the safeguard they imagined. Determining whether a home warranty is worth it requires digging into the property’s particulars—like the age of the house and its contents—and weighing the pros and cons.
What is a Home Warranty?
A home warranty, also known as a home protection plan, is an annual service contract that protects your home’s appliances and systems. These plans typically cover major appliances, such as refrigerators and ovens, and crucial systems, like wiring, plumbing, and HVAC units. You should note that home warranties differ from home insurance. Home insurance typically only covers damage to the house itself.
How to Know if a Home Warranty Is Worth It
Whether or not you’ll find a home warranty worth it depends on many factors, starting with your house and appliances’ age and condition. Many homebuyers who purchase an older home find warranties well worth the cost over the long term because the lifespan of the appliances and home systems eventually age out and require updates.
However, if you’ve purchased a new construction home, you may not immediately need a warranty if the builder provided one. You might also find that you already have plenty of protection from existing appliance warranties.
The fine print that details whatis and what is not included in the coverage will also help you decide whether or not to buy a home warranty. If you’re purchasing a warranty for the first time, note the costs per visit or repair, caps on how much money the company will cover per project, and the exact criteria for a full replacement versus a repair.
Pros of Choosing a Home Warranty
Home warranty plans are popular with new homeowners for good reason. They offer unique benefits that set them apart from home insurance plans, manufacturer warranties, and other forms of home-based coverage.
Peace of Mind
Home warranties offer peace of mind, allowing you to enjoy your new home without fretting over the appliances' general wear and tear and your home systems’ potential failure. Coverage varies from plan to plan, but most basic home warranties cover kitchen appliances, plumbing systems, septic tanks, electrical systems, HVAC units, and washer/dryer units.
Some plans cover pools, roofs, garage door openers, and windows. Home warranties are typically available in one-year increments, so you can purchase a plan and “set it and forget it.” Be sure to work with a reputable home warranty company to get the most out of your investment.
Convenience
If something breaks in your home, you’ll spend time researching the right contractor for the job. With a home warranty, you essentially outsource this job to the provider. This quick access is convenient for first-time homeowners who are new to the world of contractors-for-hire.
A warranty also gives residents who are new to the area access to reputable service technicians. Of course, you should research home warranty companies before buying a plan to ensure the provider employs reliable contractors. You can investigate a contractor by reading Better Business Bureau reviews or contacting a few of their references.
Relatively Inexpensive
You’ll pay a monthly or annual fee for home warranty coverage. Luckily, these plans are relatively inexpensive, ranging from $300 to $600 per year or $25 to $50 per month. When you consider the cost of hiring professionals by the hour for plumbing, HVAC, or appliance repairs, paying an annual premium for a home warranty could work in your favor. To help you calculate potential savings, you should know that hiring a qualified plumber costs $45 to $200 per hour.
Transferable
Most home warranty plans are transferable (but some aren’t, so re-read your contract), so if you sell your house, the warranty will transfer to the new owner. However, there may be a nominal transfer fee of about $25.
Cons of Choosing a Home Warranty
When buying a home warranty, you should take precautions like researching the company’s reputation and understanding every clause in your contract so you won’t be surprised when making your first service call. Don’t be afraid to ask your provider representative numerous questions until you feel comfortable with the answers.
Exclusions
Many home warranty contracts include exclusionary language that can be tough for homeowners to understand. For example, some plans issue claim caps: If your furnace breaks and costs $5,000 to replace, your contract’s fine print might dictate that a single claim is automatically capped at $2,000. In the end, you’ll pay $3,000, plus the plan's cost.
You should also understand the provider’s contract might only replace broken items instead of repairs. Look for language stating that you can’t seek legal action if you feel dissatisfied, which is a red flag. Keep these exclusions in mind when weighing whether a home warranty is worth it for your home.
Service Call Fees and Hidden Costs
In addition to the annual premium, many plans feature several hidden-in-plain-sight costs that add up. Like other insurance and warranty plans, you’ll pay a deductible before the coverage kicks in. Remember that each service call typically includes a service fee, regardless of the final cost to fix the problem. Many companies also charge a contract cancellation fee, forcing consumers to stick around for the entire year.
Wait Times
Home warranty companies rely on a few in-network contractors to perform repairs and replacements. If you experience a sudden emergency, the regular technicians may not be available that day or even within the week. It's also not unusual to incur long wait times for processed claims to pay out. Here’s a pro tip: You can speed up the claim process by starting an online account with the provider instead of using their phone system.
May Be Unnecessary
Before you buy a home warranty, check on the status of your other insurance and warranty plans. For example, home builders equip their houses with new appliances and systems that include a manufacturer’s warranty of one to three years. Credit cards can also offer protection for appliances and home systems.
Builders usually include a new home warranty that covers plumbing, electrical systems, HVAC units, and other necessary components. In addition, some governmental agencies, like the Federal Housing Authority, require builders to purchase a third-party warranty to protect buyers. So, you may not need an additional home warranty if you already have the builder’s and manufacturers’ warranties.
It's well worth your time to research a few home warranty companies and their options to determine whether a warranty is worth your money, especially if your home is older. But, if your home is new or you already have enough coverage, you have a little more time—save the information to buy a home protection plan in the future.