Is a home warranty worth it?

A home warranty is a service contract that covers specific repairs or replacements due to normal wear and tear. In theory, it can give anyone the peace of mind of not worrying about how they would pay for unexpected home repairs. It’s also worth considering for the convenience factor and cost benefits when buying or selling a house.

Key takeaways

• A home warranty could be worth it if you’re buying a new house or selling an old house.
• Comprehensive plans start around $60 per month ($1,200 to $1,400 annually).
• Most home warranty company complaints relate to unpaid claims.

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

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."

On the other hand, 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 do not need major repairs.

So, you should probably skip it 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.

» CHECK THE NUMBERS: Home maintenance costs

How home warranties 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 multiyear 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, 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.

How is a home warranty different from insurance?

A home warranty is never required by law.

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

• 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 for you. 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. In this way, a home warranty is more like an extended car warranty than home insurance.

» MORE DETAILS: Home warranty vs. home insurance

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 potential downsides 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.”

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).

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 new 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.

Like a lot of things, maybe you’d rather have one and never use it than need one and not have it.