Are home warranties worth it?
Consider covering the gaps in your home insurance
by Zack Reeves
ConsumerAffairs Research Team
When appliances like your refrigerator, water heater or air conditioning unit break down from normal wear and tear, homeowner’s insurance probably won’t cover repair or replacement. If your appliance is old enough to have passed its manufacturer warranty, you’ll be covering repair or replacement out of pocket.
You can avoid this scenario by purchasing a home warranty before the problem occurs. But you’ll want to have all the information you need before you make this choice, as a home warranty isn't necessary for everyone.
What exactly is a home warranty?
While an “electronics warranty” might replace your entire phone if it breaks, a home warranty will not replace your entire home. It’s not so much a warranty as it is a service contract.
A home warranty provider agrees to repair or replace certain essential systems within your home in the event that they break down. A typical coverage list includes:
Electrical and plumbing systems
Large kitchen appliances
Washers and dryers
When most homes are sold, the seller pays for the first year of the home warranty. The new homeowner can choose to renew or cancel that home warranty.
Home warranties can cost anywhere from $200 to $600 dollars a year. They’re ideal for people who can afford a monthly or annual payment, but can’t afford a new HVAC system.
How is it different from insurance?
Homeowner’s insurance is vital for the protection of your house; in fact, many banks won’t give you a mortgage if you don’t have a home insurance policy. In short, a home insurance policy only protects your house from accidental damage associated with events like theft, fire or storms.
So, if your fridge is destroyed in a fire, homeowners insurance will replace it; if it finally breaks down after years of use, your home insurance won’t cover it.
This is where a home warranty can help. Products like your fridge wear out slowly and are expensive to repair without a home warranty.
A home warranty can be a good way to supplement your insurance, depending on what you need.
So, do I need a home warranty?
It depends on your situation.
If you’re in a brand new home, a manufacturer’s warranty on your new appliances will cover you for a year or longer. And if you have both a home warranty and a manufacturer’s warranty at the same time, the manufacturer’s warranty will pay for the repairs, not the home warranty.
But if you’re in an older home, with older appliances, those appliances might soon fail. A 15-year-old refrigerator is probably on its way out, and unless you’ve got the cash to pay for a new one, a home warranty might be a wise investment.
That being said, home warranty companies set their own rules about which appliances they will and won’t cover, as well as how much money they’ll supply for repairs or replacements. A new AC unit might cost $4,000, but a home warranty company might only cover $2,000 of that. Some companies offer different coverage plans (like an insurance company), so shop around and find coverage based on the appliances you’re most concerned about.
Here are a few things you should know before you compare home warranty providers:
What’s covered under the policy: You don’t want to be surprised by finding out that your home warranty doesn’t even cover the appliance that just broke down in your home. Read your service policy carefully and ask questions, making sure you know exactly which of the appliances in your home are covered.
Which service providers the company uses: When it comes to home warranties, knowing that a warranty company is reputable simply isn’t enough. When you’re researching a home warranty, ask which service providers they use, and use reviews to find out what people think about each individual company or contractor. If you have an issue, you’ll be working face-to-face with the providers, not the home warranty company, so find a company that employs good people.
How much is the service charge: Home warranty companies charge a service fee for each service call, whether they fix anything or not. For example, if a technician has to visit your home just to diagnose the problem with your washing machine, this will cost anywhere from $50 to $100 in addition to the next house call in which they actually fix it.
How the company deals with ‘pre-existing conditions’: Companies vary in their coverage of appliances that already have damage or wear and tear. They may refuse to cover them outright, or they could deny you service when you file a claim. However, the premise is often the same: If an item is known to be damaged or defective before the company inspects it, they probably won’t cover that item. This is because no company wants to cover and pay for an item that is almost guaranteed to break down and cost them money.
Not all home warranties are the same. Before you buy a policy, make sure you read the terms of service thoroughly and understand which appliances the policy will cover, and how much they’ll reimburse you for its replacement, if necessary. This will save you from the heartache of being turned down for a claim.
If you’re not sure, don’t be afraid to ask plenty of questions before you sign up. Your home is a big investment, and you don’t want to take the risk of bad or overpriced service on its important systems.
Do your research. If you decide that a home warranty is right for you, take a look at our guide. Take whatever steps are right for you to enjoy your house for years to come.
- 7/14/17 Last Updated