Is A Home Warranty Worth It?

The answer is more complicated than a simple yes or no. 

Home warranties are a mixed bag. For some, buying a home warranty is a no-brainer to give you reassurance and peace of mind. But a low-quality warranty can be more trouble than they are actually worth.

Today, we’ll dive into everything you need to know to determine if a home warranty is worth it for you. 

What Is A Home Warranty?

A home warranty is not the same as a home insurance plan. Home warranty coverage includes the costs of repairing major appliances and home service systems from daily wear and tear.

Home warranties function like a lot of insurance plans. You pay an annual fee, or sometimes you are able to pay monthly through installments from your home warranty company. Then, when a major appliance or service system stops working, the warranty covers the cost of repair or replacement (up to a limit).

For example, you purchased a home warranty after buying your new home. A few months later, your water heater stops working. The cost of repairing your water heater is much higher than you anticipated. Luckily, since you have a home warranty, you will not have to pay the $5,000+ upfront cost of repairing the water heater, and instead, only have to pay the $100 service fee for a contractor to come and install a new one for you.

Home warranty companies usually have a service contract with several repair companies including those that service electrical systems, plumbing, HVAC, kitchen, and laundry appliances, to name a few. These agreements usually mean that you will not have to worry about finding a contractor on your own. Plus, the home warranty covers the cost of repair or replacement. You will only be responsible for paying the small service fee. 

Some home warranty companies, like American Home Shield and America’s First Choice Home Club, allow you to choose between higher service fees and lower premiums. American Home Shield Home Warranty also covers the cost of up to 21 home systems and appliances that fail because of wear and tear.

Home Warranty vs. Homeowners Insurance

In many situations, home warranties can save you a lot of money. Homeowners who are worried about their home’s appliances or systems breaking down may have peace of mind, no longer need to mind their out-of-pocket costs.

There are also other decisions that you’ve decided to make: neighborhoods, bedrooms and bathrooms, mortgage rates and lenders, and insurance policies for one of the biggest investments you’ll ever make.

Homeowners’ insurance plans often do not cover random malfunctions of appliances. Sometimes they do, but the cost of repairs will not meet your home insurance deductible, where your coverage comes into play. Either way, home insurance and home warranties have key differences homeowners and homebuyers should know.

Homeowners Insurance

Homeowners insurance (home insurance) protects your property and belongings from random chance events like natural disasters, fire, theft, and vandalism. It may also cover medical bills from accidents or injuries that happen inside of your home. Basically, home insurance covers the cost of large damaging events that no one would ever expect to happen. 

Home Warranty

Home warranties cover items that homeowners insurance would not. 

They are usually purchased just after or simultaneously with the purchase of a new home. Unlike home insurance, the norm for home warranties is to pay an annual fee rather than monthly payments. Some home warranty companies offer installment plans, but it is typical to pay a yearly, up-front fee for a home warranty.

Sometimes, home sellers will offer to include a home warranty as part of their negotiations. Home warranties can be a major selling point because it lets the buyer know that the home’s systems and appliances are likely properly maintained. Sellers might offer a home warranty to incentivize them to accept a slightly higher listing price and give them peace of mind.

To buy a home warranty, you will need to have a home inspection completed. This is another service that a seller might include in their negotiations. Other times, homebuyers must pay for the cost of a home inspection.

A home inspection is required for both home warranties and homeowners’ insurance. The inspection will spot any glaring issues or if the home’s systems have had improper maintenance. This lets your home warranty company know what kind of risk they are taking on.

Pros Home Warranties

Many home experts think that home warranties are not necessary, or could even be a waste of money. Others think they are smart investments that have the potential to save you a lot of money. Here are the biggest pros of buying home warranties.

Peace of Mind

Home warranty usually comes with a protection plan. Having a home protection plan will be valuable if one of your home items fails. You will have peace of mind, avoiding having to spend hours searching for a trusted contractor in your area to complete repairs.

Thus, this is the biggest reason to buy a home warranty. For those who always seek to have a sense of security about their belongings and finances, home warranties should be a no-brainer. Home warranties can also make sense for people who like to keep a tight hold on their budget. Paying a one-time, yearly fee can sound a lot more appealing than paying a random gigantic bill for home repairs later.

Protect Your Emergency Fund

Those who need to build their emergency savings, or “rainy day fund” should consider a home warranty. The warranty covers the cost of otherwise expensive repairs. By getting a home warranty, you may be able to start saving toward your savings goal instead of paying for things like broken garbage disposals.

Often, people who have just paid a down payment on their new home have also drained their emergency fund. The last thing you want is to encounter an unforeseen cost that could send you into debt. 

Home Warranty Considerations

Next, there are also some big cons to buying a home warranty. 

Improper Maintenance Clauses

Home warranty companies sometimes have bad reputations for trying to get out of covering costs as much as they can. One way that the warranty companies do this is through improper maintenance clauses in the warranty agreement. They will not cover poorly maintained items. Even if there was a home inspection, and the improper maintenance is the previous owners’ fault, they can try to use this argument to deny claims. 

Anyway, all the plans are set up to have similar base policies, but there are also certain options that each one offers.

Wait Times

If a home system, appliance, or device breaks down, you will need to contact the manufacturer’s customer service team online or by phone.

Because home warranties come with service agreements to work with specific contractors, you will have little no choice about the type of service you receive. Many home warranty holders complain about waiting a long time to get their repairs.

In addition, the homeowner may not have much say in the model or the brand of a replacement component or may not like the work the company-designated company does.

Fees

Some warranty holders have complaints about the service fees and out-of-pocket expenses that often come with home warranty plans. Along with the yearly fee, there is the expected service fee, and a dollar limit for most types of repairs.

Expect to pay for any service calls that you make. These costs range from $60 to $100, depending on the provider that you choose and the type of contract that you purchase.

For example, most plans only cover up to a certain dollar amount for furnaces. If the cost to replace the furnace well exceeds that dollar limit, you must pay the difference. These fees and limitations can seemingly nullify the benefits of a home warranty plan.

To Buy a Home Warranty or Not

Is a home warranty worth it for you? It depends on your specific situation and how trustworthy the home warranty provider is. 

If you built your own home, chances are a home warranty will not be worth it. If you have new home systems and appliances, they will likely also come with long enough warranties to keep you safe for a few years. Many credit cards also offer warranties for new appliances as well.

However, buyers purchasing older homes should heavily consider home warranties. If you are already going through the process of having a home inspection and doing negotiations with the seller, a home warranty should be in the conversation.

Remember that home warranties don’t cover components that haven’t been properly maintained. So you need to think about whether this plan will repair or replace a broken item. If the company that warranties your property denies a claim, the homeowner still must pay the service fee, and also the repair cost.

Home warranties are not an insurance policy; they are rather a service agreement that covers the cost of fixing or replacing certain items. Such items include major kitchen appliances, electrical, plumbing, heating and air conditioning systems. 

How do you research home warranty companies?

Before purchasing a home warranty, make sure to do your research and find a reputable company. You should talk to your real estate agent for some good advice. After that, check out the home warranty companies in your area.

It is often possible to find a sample contract on the website of the home warranty provider. However, if that isn’t readily available, it is smart to contact the company and ask for one.

Always read all the fine print and make sure that you understand the contract terms and conditions of your agreement. Some warranties have different contract terms, and there is some coverage depending on the type of warranty that you purchased.

 It is likely that it is better to rely on a fund to get through emergencies than to pay premiums for a home warranty contract that may not be necessary.

Shiirs is here to help you improve your finances by providing you with all of the advice and knowledge you need to be successful. The first step is to compare the price of home warranty plans. Click this link to get started.