Is a home warranty worth it?
A plan is only as good as its coverage
A home warranty is a service contract that covers specific repairs or replacements for your major appliances and systems. If you have a good provider, you can enjoy the peace of mind knowing you don’t have to pay for unexpected home repairs. It’s also worth considering for the convenience factor and cost benefits when buying or selling a house.
A home warranty may not be a good idea for all homeowners, though. Learn more about its benefits and when it makes the most sense to sign up for a plan.
- 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.
What is a home warranty?
A home warranty is a service plan that any homeowner can sign up for. Typically, you’ll pay for a yearly contract and choose a plan to cover appliances, systems or a combination of the two. If any item covered in the plan breaks down, you’ll file a claim with the warranty provider. The company will then send a technician out to repair or replace the item.
Your monthly payment and specific terms of the contract will vary depending on the provider and what type of service plan you choose. Keep in mind that a home warranty is not the same as homeowners insurance, which provides coverage for the structure of your house and certain perils, such as theft, vandalism or fire.
» LEARN MORE: What is 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.
- HVAC system
- Plumbing system
- Electrical system
- Water heater
- Clothes washer
- Clothes dryer
- Range, oven and cooktop
- Structural elements
- Preexisting conditions
- Improper installation or maintenance
- Code violations
- Unusual wear and tear
- Anything covered by insurance
How much does a home warranty cost?
A basic home warranty typically costs between $450 and $600 per year and can often be paid monthly, with an average monthly cost of $40 to $60. 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.
» MORE DETAILS: How much does a home warranty cost?
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
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."
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 don’t need major repairs.
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
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.
- Predictable costs
- Peace of mind
- Potential savings
- Repairs might take longer
- Confusing fine print
- Service call fees
- No coverage for preexisting conditions
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).
Frequently asked questions
When does a home warranty make sense?
According to Theresa Raymond, a real estate professional and broker who has been involved in hundreds of home, cabin and lot transactions, a home warranty can make sense if you have an older house with older appliances, a limited emergency fund or a busy lifestyle.
- Older houses with older appliances: Buying a home warranty makes perfect sense if you have an older home with older systems and appliances. These systems and appliances are more prone to breakdowns, so you may need more frequent repairs. In this case, a home warranty can be a good investment for you to get peace of mind and to protect against unexpected expenses.
- Limited emergency fund: A home warranty can be an excellent investment for you to protect against unexpected expenses if you don’t have a good amount of savings or an emergency fund to cover your unexpected repairs and replacements.
- Busy lifestyle: If you don’t have the time to handle repairs and maintenance, a home warranty might be the most convenient way for you to manage the repairs and replacements.
» COMPARE:Best home warranty companies
Does a home warranty cover roof repairs?
Some companies offer limited roof leak coverage as part of an upper-tier plan or as optional add-on coverage. Read the contract for exclusions and limitations — specifically, check the maximum payout, which types of roofs are excluded, whether it covers items that penetrate the roof and what coverage is available for gutters and downspouts.
How long do home warranties last?
Most home warranty contracts last for one year. However, you may get a discount if you sign up for a two-year plan with certain companies. If you’re in the process of selling your house, you can sign up for a short-term plan while the house is on the market.
» DIVE DEEPER: How long does a home warranty last?
What are some common misconceptions about home warranties?
Too many people think that a warranty will cover everything in their house — it won’t. Others still get it confused with home insurance. We asked Jon Morgan, CEO of Venture Smarter, a consulting firm that works with startups and small businesses, to clarify these three common misconceptions:
- A home warranty covers everything in the home. While a home warranty does cover many major systems and appliances, it doesn’t cover everything. Items like outdoor fixtures, structural components and preexisting conditions are typically not covered.
- A home warranty will pay for all repairs. A home warranty will only cover repairs that are specifically listed in the contract. Even a covered item may have exclusions, which is why it’s so important to read the contract carefully.
- A home warranty is the same as homeowners insurance. This is not true. A home warranty is a service contract that covers the repair or replacement of major home systems and appliances that break down due to normal wear and tear. Homeowners insurance, on the other hand, covers damage caused by unexpected events like fire, theft or natural disasters.
Are there different types of warranties?
Yes, there are several types of warranties. When you buy something new, it might come with a manufacturer's warranty. This is a guarantee of performance — if a product doesn’t function as advertised or promised, then the company pays to repair or replace it.
Like extended car warranty companies, home warranty companies are third parties that offer coverage after the original manufacturer’s warranty expires.
There are also different types of home warranties. For example, a homebuilders warranty is a type of warranty that is offered by the builder of a new home or newly constructed property. It provides coverage for structural defects or issues that may arise with the home's major components, such as the foundation, framing and roof, within a specified period of time after the home is built.
Additionally, seller warranties are typically offered as an incentive to potential buyers; buyer warranties are purchased when you buy a new home.
» COMPARE: Buyers vs. sellers home warranty
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