Is a Home Warranty Worth It?

How much does a home warranty cost?

A basic home warranty typically costs between $350 and $900 per year and can often be paid monthly, with an average monthly cost of $30 to $90. In addition to the yearly cost, there are also service call fees charged by home warranty companies each time a repair is needed, typically ranging from $75 to $150.

The cost of the home warranty can vary based on several factors, including:

• Level of coverage: Home warranty plans typically offer different levels of coverage — higher levels of coverage cost more than basic plans. Comprehensive coverage costs between $1,200 and $1,400 per year.
• Age and condition of the home: The age and condition of the home can affect the cost of a home warranty. Older homes or homes with older systems and appliances may have higher costs due to a higher likelihood of repairs or replacements being needed.

It's important to compare the cost and coverage of different home warranty plans from different providers to find the best option for your needs and budget. Some home warranty providers may offer discounts or promotions, so it's also a good idea to ask about any available deals.

Is a home warranty worth the money?

Whether a home warranty is worth the money “ultimately depends on your individual circumstances and the age and condition of your appliances and systems,” according to David Light, chief development officer at Land Broker Co-op. Often, it’s worth it in a couple of scenarios:

• When you’re selling an old home: Incentivizes potential buyers because it guarantees the home's systems and appliances.
• When you’re buying a new home: Financial protection during the first year of homeownership, when unexpected repairs can be costly.

Even if you’re not in the middle of buying or selling a home, a warranty can be worth the cost if you have an older house. If you haven’t been able to update several of your appliances or systems, they could easily break down. Unless you have a sizable emergency fund, you could be spending thousands to replace these items.

According to Eddie Martini, a strategic advisor at Real Estate Bees, warranty plans can be a great investment for homeowners, “especially a first-time homebuyer who may not be used to having unexpected expenses like an oven needing to be replaced or bigger-ticket items like an HVAC system."

Martini continued: “Once you start to see that the cost of a home warranty would be a fraction of these big-ticket appliances, you see the value in transferring that risk to the home warranty company."

When is a home warranty not worth it?

You should probably skip purchasing a home warranty if you’re buying a brand-new home with new appliances that are under a manufacturer’s warranty or you already have enough savings to pay for repairs and replacements out of pocket.

Light said it's worth noting that home warranties aren’t always worth the cost: “It may not be necessary if you have newer appliances or a larger emergency fund.” The cost of a home warranty will likely outweigh the benefit if you don’t need major repairs.

Here are some scenarios where it may not make sense to invest in a home warranty:

• New appliances: If your appliances and systems are still under manufacturer warranties, a home warranty would be redundant.
• Well-funded emergency savings: If you already have a substantial emergency fund, you may be able to cover unexpected repair costs without paying for a warranty.
• Limited coverage for your needs: If the plan you’re considering excludes many items you rely on or imposes low payout limits, the cost may outweigh the benefits.
• Proactive maintenance: Homeowners who are diligent about regular maintenance and use newer systems may not see much value from a warranty.

In these cases, it might make more sense to skip the warranty and put that money into a dedicated savings account for repairs.

» CHECK THE NUMBERS: Home maintenance costs

Home warranty pros and cons

Appliances can break down, pipes can burst, and HVAC systems can malfunction, leaving you with unexpected repairs or replacements that quickly add up. In the best-case scenario, you have a home warranty to cover the expenses.

One of the possible downsides to a home warranty is that repairs can take a long time. A ConsumerAffairs reviewer in Texas got coverage for their washer and dryer, and the company “gave us back $1,300. We still had to put $700 out of pocket on the replacement, but it was better than nothing. The only thing was the process was a little bit painful and it was too slow.”

Home warranty alternatives

But what if the company doesn’t honor your claim at all? Then you’ve paid hundreds of dollars toward nothing. In some cases, you might be better off looking into alternatives to pay for home repairs, like a credit card, personal loan or home equity line of credit (HELOC).

Another option is to self-insure by setting up a dedicated emergency fund so you’re prepared if something breaks down. Research the typical lifespans and repair or replacement costs for your home systems and appliances, then choose an annual savings target. Maintaining a repair savings account takes discipline, but if your funds are enough to cover your needs, it can help you avoid paying home warranty premiums you may never use.

Equipment breakdown coverage, which is an endorsement you can add to some homeowners insurance policies, is another convenient and often cheaper alternative to a home warranty.

How does a home warranty work?

A home warranty helps cover costs to repair or replace certain systems and appliances in your home when they break down. The contract usually lasts for one year, but some companies offer multi-year plans for a discount or month-to-month plans with no commitment.

When you file a claim, you contact the home warranty company and it sends out a contractor from its network. You pay a service call fee (usually $75 to $150), which is specified in your contract. As long as the repair is covered under the terms of your agreement, the contractor makes the repair or replacement, and the home warranty company pays for the cost.

Home warranty contracts do have payout limits and restrictions, which is why it’s important to read the fine print carefully before you sign up. Here is what’s typically covered and not covered.

What is the difference between a home warranty and home insurance?

A home warranty seems similar to homeowners insurance, but there are key differences. Warranties cover breakdowns of appliances and systems caused by normal use, while insurance covers damage from perils.

A home warranty is never required by law.

• Home insurance coverage: Applies to damage and loss caused by natural disasters or unexpected events (fire, storms, theft, vandalism, etc.) and covers your liability if someone is injured on your property.
• Home warranty coverage: Applies to appliance and system breakdowns from routine use.

For example, if your air conditioner suddenly stops working, you can call the home warranty company and it will send someone to fix it or replace it. But if your air conditioner is damaged in a fire, you would call your insurance company to pay for a replacement.

If you have a mortgage, the lender will require you to purchase a home insurance policy. Home warranty plans, however, are always optional.

» MORE DETAILS: Home warranty vs. home insurance

FAQ

Bottom line: Should I get a home warranty?

A home warranty can help homeowners on a tight budget by providing coverage for unexpected repairs, which can be especially important for major systems or appliances.

It also makes sense for home sellers to offer a home warranty as an incentive to potential buyers, as it can give buyers confidence in the condition of the home's systems and appliances.

However, if you’re buying a newly constructed house, it’s likely that your appliances are still under the manufacturer’s warranty. Still, you might consider getting coverage for your systems (heating, interior plumbing, etc.).

For some, it’s also worth it for the sense of security. You have to pay a little bit of money every month or every year for the warranty, but it can save you a lot of money in the long run if something in your house breaks and you need to get it fixed or replaced.

If you’re on the fence about whether a home warranty is worth it for you, ask yourself these questions:

• Do I already have protection? If many of your appliances or systems are already covered — for example, by a manufacturer’s warranty — a home warranty likely won’t provide much value.
• How much can I afford to pay for repairs? If you have a limited emergency fund and an unexpected repair bill could hurt you financially, a warranty may make sense.
• How old are my appliances? Older appliances are more vulnerable to failure, so you’re more likely to use your coverage. However, if you live in a new construction home or just replaced major appliances, your coverage may go unused.
• What’s my risk tolerance? Home warranty risk goes two ways. Are you more comfortable risking that you may need warranty coverage and not have it, or that you might have it and not need it?