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Is a home warranty worth it?

These contracts help pay for costly household repairs

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    family moving into their new home

    First-time homebuyers often face the buying process with trepidation. After preparing and saving for a down payment, the process of taking on a mortgage, learning about property taxes and trying to figure out what escrow means can be daunting. And what about those unexpected repair bills?

    A home warranty may provide a solution to home repair bills. By paying a yearly fee (and a service fee for each claim), you are financially covered in case any covered item breaks down from normal wear and tear.

    Home warranties allow you to worry less about budgeting for big repair bills, but not all home warranties provide the same level of service or coverage.

    What is a home warranty?

    A home warranty helps to cover costs to repair or replace certain systems and appliances in your home when they break down. A seller may offer it as part of a purchase contract, you can buy it at the time you purchase your home, or you can buy a home warranty after you’ve owned your home for some time.

    A home warranty contract usually lasts for a year. When you have 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 so important to read the fine print carefully before you sign up.

    How is a home warranty different from insurance?

    Home warranty coverage is frequently confused with homeowners insurance, but the two are quite different. A home warranty pays for repairs or replacements of important home systems and appliances when they break down from normal use. You aren’t required to purchase a home warranty.

    Homeowners insurance covers loss or damage to your physical home structure or personal belongings inside due to events such as fire, lightning strikes and hail. It also covers other structures on your property, vandalism and theft, and your liability in case you are responsible for an injury on your property or damage to someone else’s property. If you have a mortgage, the lender will require you to purchase a home insurance policy.

    Both homeowners insurance providers and home warranty companies give you options for different types of plans. You usually can select optional coverage for additional items; your exact level of coverage depends on the plan and options you choose.

    Homeowners insurance

    • Applies to damage and loss from “perils” like fire, lightning, wind and hail
    • Covers physical home structure, other structures, personal belongings and liability
    • Usually required by a mortgage lender
    • Coverage limits and deductible

    Home warranty

    • Applies to breakdowns from routine use
    • Covers household appliances and systems
    • Never a required purchase
    • Coverage limits and a trade service call fee

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      Home warranty benefits

      The main benefit of a home warranty is not having to spend a large amount of money out of pocket when a covered appliance or system stops working. All you owe when you make a claim is the service call fee amount, which is stated in your contract and generally ranges from $55 to $150. As long as the item is covered, the home warranty company then pays for the full cost of the repair or replacement.

      Another benefit of a home warranty is that you don’t have to search for a reputable contractor when there’s a breakdown. This is a big plus if you’re new to the area or overwhelmed by the idea of choosing a repair technician. Home warranty companies have a network of local, licensed and insured contractors, and many companies guarantee the repair for a certain time.

      You can usually divide your home warranty's yearly cost into monthly payments to make it more affordable. You’re generally allowed to cancel when you want, and most companies will transfer the contract to a new homeowner if you sell your property. Check for fees for cancellation or transfer. Home warranty companies also sometimes offer extra perks, like discounts on new appliances and air filters.

      Home warranty drawbacks

      Home warranties have limitations and exclusions, so it’s essential to read the fine print in the contract. It will state the circumstances when coverage applies, what parts of each item are excluded from coverage, payout caps for individual systems and appliances, and yearly maximums. For example, most companies state that if you fail to properly maintain an item and it breaks down, it won’t be covered; your provider may even have the right to ask for proof of maintenance.

      While some homeowners like that you don’t have to find a contractor with a home warranty, others might not. If you have a preferred repairman or like the idea of finding one yourself, a home warranty might not be for you; only select companies give you the option of choosing a technician yourself, and even then, you have to provide evidence that they meet certain standards.

      Home warranties aren’t cheap — average annual costs are from $430 to $820 per year — so you want to be sure there’s at least a chance you’ll use it. If you have a brand-new house or a home with mostly new appliances and systems that are still covered by the manufacturer, you probably don’t need a home warranty.


      How much does a typical home warranty cost?

      For appliance-only plans, you can expect to pay between $30 and $45 per month. Plans that only cover household systems usually cost about the same. A comprehensive plan that covers both, you can expect to pay about $60 per month. Plans range from about $430 to $820 per year. The service call fee, which you pay each time you make a claim, ranges from $55 to $150, depending on the plan.

      What’s the difference between a home warranty and homeowners insurance?

      Homeowners insurance protects you if your home or personal belongings are damaged or lost in a fire, lightning strike, windstorm, hailstorm or other similar event. It also covers vandalism and theft, and it has a liability component that covers accidents on your property and property damage to another person’s property.

      A home warranty covers the cost to repair or replace specific appliances and systems in your home when they malfunction from normal use.

      Do sellers typically pay for a home warranty?

      Sometimes. In some real estate transactions, the seller may offer a home warranty as an incentive to the buyer. In some circumstances, a real estate agent may even pay for the home warranty as a housewarming gift. If a home warranty isn’t included in your purchase, you can buy one yourself at any time.

      Does a home warranty cover roof repairs?

      Some home warranty companies offer limited roof leak coverage as part of an upper-tier plan or as optional add-on coverage. Check the contract for exclusions and limitations— specifically, about the maximum payout, which types of roofs are excluded, items that penetrate the roof, gutters and downspouts.

      Bottom line: Is a home warranty worth it?

      Purchasing a home warranty is often worth it if you have older appliances and systems that would be expensive to repair and you don’t want to pay for repairs 100% out of pocket. It might pay for itself after one major repair or several smaller repairs. You can spread out the cost over monthly payments, cancel when you want and even transfer the contract to a new homeowner if you sell.

      On the other hand, home warranties don’t make sense for every homeowner — especially those who have new appliances and systems. Home warranty companies will not cover items that still have coverage from the manufacturer, homebuilder or an extended warranty company.

      Before buying a home warranty, document the age and condition of your major home systems and appliances, and note the average repair and replacement costs and life span for each. Also consider your financial situation and if you have funds set aside to pay for repairs or replacements. Compare the possible repair costs for the next year with the cost of a home warranty; if the repair costs exceed the warranty cost, purchasing a home warranty could be a good idea.

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