Are Home Warranties Worth It? What To Consider

Imagine the stove goes out when you have the family coming into town for Thanksgiving. Maybe you find you need a new air-conditioning unit right before you’re having 50 people for a graduation party. A home warranty is meant to cover repairs and replacements when appliances and home systems act up. But are home warranties worth it?

Is A Home Warranty Worth It?

Depending on the age of your home, it’s generally recommended that you should budget 1% – 3% of the purchase price of your home annually for maintenance. There may be years where you don’t touch that budget at all, and it rolls over. Other years, you may have three appliances break down in a 6-month period.

A home warranty is a way of locking in certain costs for maintenance so that you have an idea of how much you can expect to pay. Instead of setting money aside, you pay the fee under a home warranty contract and if you have an issue, your repair cost is limited to the amount of the service call and anything above the maximums covered in your contract.

Are Home Warranties Worth The Time?

When you make the claim, there will be a time frame in your contract that states how long the home warranty service provider has to put you in touch with one of their partner contractors. This is the timeline for the diagnosis call. It doesn’t include the time it would take to get the repair or replacement approved or finished. Homeowners are also responsible for scheduling.

We reviewed sample service contracts from three companies that have coverage areas that account for a large cross section of the U.S. Two of the companies estimate you’ll be contacted within 48 hours of filing a claim and a third tries to contact you within 2 hours if the claim is filed during normal business hours and within 24 hours outside of these.

Are Home Warranties Worth The Cost?

When trying to evaluate home warranty options based on the cost of the plan, there are three factors to keep in mind:

• Location matters: Your monthly or annual cost and your service fees will depend on where you’re located. The labor and parts cost associated with different areas of the country can vary quite a bit.
• Fees and service call costs: When you look at these options, you’ll notice there’s an inverse relationship between the cost of the service call and the cost of your monthly or annual fee.
• Try to compare similar plans: Each of these companies offers a variety of different plans, often covering appliances, home systems or both. You can also get a variety of add-ins. While it’s unlikely that you will find any of these plans are a one-to-one match for each other, you’ll want to get as close as possible for a fair price comparison.

The author did price comparisons for the same three leading home warranty companies and found the monthly fees to range anywhere from $20 – $100 and the cost of service calls to be in the range of $100 – $150 for his home in a suburb of Detroit.

Are Home Warranties Worth The Effort?

On one hand, having a home warranty may mean that you have to wait some time for an approved service provider to contact you to schedule repair and replacement. On the other, you don’t have to deal with finding your own service provider. Once in contact with the provider, you have some control over the timelines because you control the scheduling.

However, if you’re the type who feels comfortable reaching out and negotiating with people on your own, you may get your repair accomplished faster than working through a home warranty provider and you wouldn’t have a separate monthly or annual fee.

When Is A Home Warranty Not Worth It?

Now that we’ve gone over the basics of deciding when they may make sense, let’s run through a few scenarios in which a home warranty may not be worth it.

You Keep Up With Routine Maintenance

Every appliance or home system is going to have recommended instructions for care and maintenance to extend the longevity of the system. Depending on how busy they are and their level of comfort in dealing with electronic, plumbing, HVAC and other maintenance, people may or may not keep up with these tasks on a regular basis.

If you’re the type who knows you can handle these routine checks and your appliances are well cared for, the monthly cost of a home warranty may not make sense when compared to the cost of your claims.

Your Appliances And Systems Are New

A home warranty may not make sense if your appliances and/or the systems that would be covered are brand-new. For example, you wouldn’t necessarily need one if you were buying new construction home. Not only are new systems and devices less likely to break down, but if they do, you’re also likely covered under the manufacturer’s warranty.

You Can’t Find A Policy That Meets Your Needs

Home warranty providers offer a variety of plans and special coverage options that are intended to meet a wide range of needs. However, they don’t cover everything. Even for appliances and systems that are covered, there are always exclusions and limitations on the maximum payout for claims. You may not find a plan that meets what you’re looking for.

You Pay More In Premiums Than You Save

When you get a home warranty, at minimum there’s a monthly or annual fee. You also have to pay some amount for every service call made under the plan. If you don’t have anything break for a while or your coverage limits are too low relative to your payments, you might be spending more on the plan than what you’re actually getting out of it.

Home Warranty Pros And Cons

By evaluating the benefits and drawbacks of a home warranty, you can decide whether one is right for you.

Pros

• Convenience: If something breaks, you’re not responsible for finding a service provider and negotiating. You just file a claim, and your home warranty provider sets everything up.
• Peace of mind: Replacement or repair of the appliances and systems covered under these contracts can be expensive. If you have the home warranty, you won’t have the budget shock associated with having to get something fixed or swapped out on short notice.
• Access to professional service providers: You won’t have to find and negotiate with someone who can do the repair or replacement. The home warranty company will have a network of providers that they work with.
• Some idea of maximum costs: You can know upfront exactly what’s covered in your contract, which may give you a better idea of your maximum out-of-pocket costs for any repair or replacement.

Cons

• Base and service fees: With a home warranty, you’ll have to pay off the monthly or annual fees and a service fee associated with each claim you make. In that way, it’s similar to having a homeowners insurance deductible.
• Coverage limits: Every policy comes with exclusions and limits. There may be an overall limit and coverage or limits on certain categories of service calls.
• Less control over repair decisions: When you put in a claim, you have to work with the provider your home warranty company sends out. You are also bound by their decisions regarding repair and replacement in terms of what they’ll cover.
• Timing: You may need something fixed quickly in a way that doesn’t line up with your contract or the agreement your provider has with their service network. There are times when you may have to pay out-of-pocket and then fight for reimbursement if it’s an emergency.

Is A Home Warranty Required?

You’re never required to get a home warranty. Part of the confusion around this might be that a lot of this sounds similar to homeowners insurance policies. Although they cover similar things in certain circumstances, they’re not the same. It’ll help to briefly go over the difference.

A home warranty is meant to help you cover the breakdown of appliances and systems based on normal wear and tear. It doesn’t cover damage to appliances or home systems as a result of storms, electrical failures, fire, water damage and the like. That would fall under your homeowners insurance policy. You may need to add property and theft to structural coverage.

Should You Buy A Home Warranty?

Only you can decide whether a home warranty is the right choice for you. Briefly, here are some situations during which one may make sense and when one won’t:

When To Consider A Home Warranty

• Older appliances and systems: If you have aging appliances or systems in your home that you anticipate having to repair or replace based on years of service, it could be helpful to get a home warranty. Just be sure that the contract doesn’t include an exclusion for years of service.
• Not comfortable with home maintenance: If you know you’re not comfortable doing certain maintenance tasks around the house yourself and you wouldn’t be sure who to go to for repair or replacement services, a home warranty means vetted professionals come to you.
• Set it and forget it: You don’t have to worry about setting aside a separate budget for home maintenance and repair if the things that you would have to do are covered within your home warranty policy.

When To Skip A Home Warranty

• Your home systems and appliances are updated: If the systems and major appliances you’re using within your home are on the newer side, chances are they would be covered under the warranty from the maker.
• You’re handy enough and can find experts: If you can handle many of the basic tasks around recurring maintenance and can find experts to negotiate with on major repairs, you may be able to schedule fixes faster than you could under a home warranty without the recurring fee.
• You’re a saver: If you save a portion of your purchase price for maintenance every year, there may be years when that money doesn’t get touched at all. You might have to spend a lot of it down the line, but in the meantime, you can have it in investments working for you rather than paying for a home warranty you might not be using.

Alternatives To A Home Warranty

Home warranties can certainly be helpful, but they’re not the only option. Here are some alternatives to consider:

• Build an emergency fund: It’s a good idea to have an emergency fund for other things like medical expenses anyway, but you should also consider home maintenance as part of this for everything that would normally be covered by a home warranty and what isn’t. For example, you’ll have a hard time finding a plan going to cover roof replacement.
• Keep up with home maintenance: You may find that the cheapest option is to keep up with maintenance over time to extend the useful life of your home systems and appliances.
• Use included warranties for appliances or systems: If you still have lots of systems that are under the manufacturer’s warranty, it’s free to take advantage of these as opposed to paying for a home warranty.

The Bottom Line

A home warranty is meant to provide for repairs and replacements of covered appliances and home systems. Whether one is worth it for you may depend on several factors including your budgeting habits, your comfort with home maintenance and the age of your appliances.

If you’re looking into home warranties, there’s a good chance you’re looking at homes or perhaps thinking of refinancing your current one. If you’re ready to get started, move forward with a mortgage application!