Are Home Warranties Worth It?

A home warranty is a contract designed to cover the costs associated with repairing or replacing major appliances or systems. So, it’s a different type of protection than home insurance. But are home warranties worth it? The answer depends on factors specific to your situation.

Like all optional warranties, home warranties have advantages and drawbacks. It’s important to carefully evaluate your needs and weigh them against the general pros and cons. Let’s get into the details to help you figure out if you should get one.

What Is a Home Warranty?

People sometimes confuse home warranties with homeowners insurance. However, the two are not the same thing. Comparing their differences is a useful way to understand how home warranties work.

Home insurance covers property damage from risks and perils like fire, extreme weather, vandalism, flooding, and theft. Most policies also contain protections that safeguard homeowners from liabilities from injuries that happen on their property. However, homeowners insurance policies don’t cover appliances and systems that break down. So, things like your electrical wiring, HVAC components, ovens, and refrigerators aren’t covered.

Companies developed home warranties specifically to fill this coverage gap. Home warranties function as specialized service contracts between the homeowner and the coverage provider. Once the homeowner purchases a policy, the warranty provider agrees to cover part or all of the costs associated with repairing or replacing covered appliances and systems.

Home warranties typically cover:

Some providers offer standardized plans that provide a fixed, specific set of coverages. On the other hand, some allow homeowners to customize their plans, adding or removing whatever items, appliances, and systems they wish.

How Home Warranties Work

If something covered by your home warranty breaks down, then the homeowner contacts the warranty provider. The provider then sends an affiliated service technician to evaluate the problem. If the technician confirms the issue is covered by the warranty, they repair the problem or replace the appliance. Then, the warranty provider covers the cost either in part or in full, as stated in the contract.

Costs vary, depending on the provider, what the warranty covers, and other factors such as the age of your home systems and appliances. In general, the average cost for a basic plan ranges from $350 to $600 per year. Some companies require the full cost to be paid upfront, while others allow homeowners to make monthly payments. Additionally, most home warranties include a modest service fee when a technician is sent to repair or replace a covered item.

Pros and Cons of Home Warranties

Home warranties have several advantages, but they also come with inherent drawbacks. In order to answer the overarching question — are home warranties worth it? — we recommend weighing the relative merits of these pros and cons.

Pros
Cons
Peace of mind that appliances and systems are covered
Read the fine print because there may be exceptions
Companies pick technicians, so you don’t need to do research
Some people would rather choose their own technician
Cost-controlled home maintenance with predictable payments
There are often annual coverage limits to consider
Some policies are transferable to new owners if the house is sold
Some policies have transfer fees, while others won't transfer

Who Needs One for Their House?

In addition to considering the overall pros and cons of home warranties, you should also consider situation-specific factors before deciding whether to buy one.

To this end, a home warranty may be a good option if you:

On the other hand, you might choose to not pursue a home warranty if your:

It’s a smart move to couple the general pros and cons with the specifics of your situation when considering whether or not to purchase a policy.

So, Are Home Warranties Worth It?

Unfortunately, the question doesn’t have a universal answer. However, there are many situations in which home warranties have saved homeowners thousands of dollars they would’ve otherwise had to pay out of pocket. And even if you never need to file a claim, you still benefit from the peace of mind that comes with an added layer of protection.

In the end, the decision is yours. If you move forward with a home warranty, then you’ll want to read the fine print closely and perform a cost-benefit analysis. Take the next step and compare top home warranty companies.