For buyers with a mortgage, home insurance is required by lenders to protect their investment — and yours. Homeowners insurance covers catastrophic events caused by weather, fire, and theft.
Given all that home insurance covers, you might wonder, “Are home warranties worth it?” The answer depends on your financial situation and the house in question. Here’s what you need to know.
What Is a Home Warranty?
A home warranty is a service contract that covers the cost of repairs or replacement when something stops working. Also known as a home protection plan, home warranty policies cover major appliances and home systems when they fail due to normal wear and tear. This differs from homeowners insurance, which covers these items only in the event of a disaster, not due to predictable aging.
Individual policies vary, but in general, you can expect extended home warranties to cover the following items:
- HVAC systems
- Electrical systems
- Plumbing systems
- Water heaters
- Stoves
- Refrigerators/freezers
- Dishwashers
- Washers and dryers
So, how do home warranties work? You sign up with a service provider and pay an annual premium. Then, if one of the covered items breaks, you call the servicer to come to fix it or replace it—which they will do for free, minus any service call fees. At the end of the year, you can choose to renew the contract if you like, and coverage continues.
As with any contract you sign, it’s important to read the fine print to know exactly what is covered and any limits that may be applied.
Do I Need a Home Warranty?
Now we know what a home warranty is — but is a home warranty worth it and do I need one? Whether or not a home warranty plan is worth it depends on your situation. To decide what’s right for you, think through your needs, skills, and the condition of your house. Ask yourself these questions:
1. Is your house new?
New construction is often covered under a builder’s warranty for the first year or two, so purchasing a home protection plan would be redundant. Check with your contractor to see what’s covered and when to call. Most reputable builders are happy to fix any issues that come up as the house settles in its first year.
2. Are you handy?
If you have DIY skills already, you may find that you are able to fix some things on your own. For example, if you know how to do basic wiring, can unclog a drain trap, and like to tinker with appliances on the fritz, you may feel confident in doing your own repairs.
3. Are you a first-time homeowner?
Conversely, many new homeowners lack experience in basic home maintenance and feel overwhelmed by the responsibility of managing a whole house on their own. If this is your situation, you may find the peace of mind home warranties provide are well worth the price.
4. Are your home and appliances 10 to 20 years old — or more?
Most major appliances are designed to last about a decade. If yours are getting to that age, a home warranty may be a good investment, since it will help cover the cost to replace them. Likewise, many home systems begin to deteriorate after 10 to 25 years in service. If your house is getting up there in age, a home warranty can protect you from a financial hit when something breaks.
5. Do you have emergency savings?
One of the reasons that a home systems failure is so scary is the unexpected cost. For example, you could spend up to $6,000 to replace a furnace—and it’s not like you can wait if it’s the middle of winter. If you don’t have a solid emergency fund in place, these costs could send you deep into debt. Home warranties help spread out the costs and make them more predictable over time if you don’t have much in savings.
When and why should you get a home warranty? 4 benefits to consider
There are several pros and cons of home warranties. Here are some important home warranty benefits:
1. One Quick Call
When something breaks, a home warranty means that you have just one number to call to get the help you need—no more researching different tradespeople and hoping to find someone reputable and honest. Home warranties streamline the repair process and are designed to be easy to use. This is especially useful if you’re relocating to an unfamiliar area.
2. Broad Coverage
Manufacturer’s warranties are great for appliances, but they only cover the equipment itself. If the problem with your dishwasher turns out to be a broken pipe, the appliance warranty won’t help. Likewise, individual appliance warranties tend to be short-lived, but you can renew your home warranty coverage year after year.
3. Predictable Budgeting
For many people, a big emergency expense could really break the bank. Home warranties allow you to pay a set price each year for coverage, so you can build your household budget around this predictable cost.
4. It Might Pay for Itself
If you end up using your home warranty to replace a leaky pipe, your savings over calling a private plumber for emergency help could easily amount to more than you paid for the policy upfront. When a system fails, your investment in a home warranty could really pay off.
When and Why Should You Avoid Getting a Home Warranty? 3 Drawbacks to Consider
In some cases, it’s not always clear that home warranty policies are worth the money. Here are some important limitations to look out for as you study the fine print of any policy:
1. Claim Caps
Some policies will cap the amount of money they’ll pay out for a specific repair or replacement. For example, if your refrigerator expenses are capped at $700, you might have to pay some money out of your pocket if the replacement model costs $850.
2. Deductibles
Just like insurance, some home warranty policies have a deductible attached. This is the amount you’ll be required to pay out of pocket before the company will begin to cover your expenses.
3. Service Fees
Having a technician come out to check your washing machine might not be free. Many home protection plans require a service call fee for each visit—whether or not they find anything wrong.
The Bottom Line — Are home warranties worth it?
So, is a home warranty right for you? If you lack skills around the house and value peace of mind and predictability, the answer could be yes. If you live in a brand new house or are worried about the cost, be sure to examine your options and compare prices before you purchasing a home warrantycommit to a home warranty policy.
FAQ
How much does a home warranty cost?
A 1-year home warranty policy will typically cost the homeowner between $300-$600 depending on the coverage they are looking for.
How long do home warranties last?
Generally, home warranties last 1 year.
How soon can you use a home warranty after purchase?
For most companies, there is a 30-day period between when the home warranty is purchased and when the homeowner can file a claim.
Can I choose the company making the repairs with my home warranty?
In short, no. Your home warranty company already has affiliations with pre-approved companies in your area who they will send out in response to your claim.