The home warranty is a popular option among home sellers and buyers. A service contract agreement designed to cover some of the routine maintenance and repair costs of home ownership, the home warranty sounds like a great idea—a prepaid source of protection against the inevitable appliance failures and plumbing mishaps that happen when you own a home. But is a home warranty worth it? Do you actually get your money’s worth out of this arrangement? And how does it really work?
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What is a home warranty?
A home warranty is an agreement forged between a homeowner and a home warranty company, and is meant to provide access to discounts on repairs and part replacements in the event of damage, malfunction, breakages, or routine maintenance to major components of the home. These components may include heating and air conditioning systems, plumbing and electrical, and repairs to major household appliances such as washers, dryers, refrigerators, and dishwashers. Investopedia notes that pool maintenance may also qualify for coverage depending on the nature of your home warranty policy.
It’s also noteworthy that a home warranty may actually be offered by the seller as you purchase a new home. In fact, this has become an increasingly popular way for sellers to attract buyers. This provides some assurance that repairs can be made affordably, and can serve as a backstop against some unforeseen expenses, especially for aging homes.
Investopedia does warn that, if you do not receive a home warranty as part of the purchase on your, you will most certainly be hounded by solicitations just as soon as you’ve closed on your home. So the question is, should you take up one of these solicitation offers? Will a home warranty save you money in the long run on repairs?
Perhaps, but there are a number of factors to consider including the nature of the offer provided by a given home warranty company, the age of the appliances and other covered components in your home, the partnerships with service providers held by your home warranty company and more. But let’s start with a basic look at how the home warranty works.
How does a home warranty work?
A home warranty works by charging the homeowner a fixed sum—somewhere between several hundred and $2,000—which may be charged either upfront or through monthly or quarterly installments. This sum may vary based on the type of property—single detached home, townhouse, condominium, etc—as well as the age of the property. Home warranties for newer homes actually tend to cost a little more, notes Investopedia. That said, house size will generally not impact cost unless the size of the home exceeds 5000 square feet. Most policy plans may be renewed or suspended each year.
The premium payment will provide the homeowner with access to service and repairs at a discounted rate. These services and repairs are generally provided through established partnerships between the warranty provider and various contractors and service technicians. It’s important to note, however, that this discounted rate does not necessarily mean that the homeowner will be spared of all out-of-pocket expenses. For one thing, notes Investopedia, most home warranty companies will charge a fee—usually somewhere in the range of $50 to $100—for any service visit.
This service visit will usually determine what repairs or replacements are necessary, and whether or not you qualify for coverage on these items. This latter determination is a critical aspect of the home warranty. Coverage is not always guaranteed, even on items that are included in your policy. Certain technicalities regarding proper maintenance may apply. We’ll address this in fuller detail below, but it’s something you need to be aware of before entering into a home warranty agreement.
What’s the difference between home insurance and a home warranty?
Home insurance is a mandatory coverage policy that every homeowner must have, and is meant to cover expenses for major events including damage from natural disasters, property theft, fire, flood damage, and more. Your home insurance will not typically cover repairs for appliances and major household components like heating and HVAC, and even in cases where these items may be covered, it is likely that the deductible payment on your policy would exceed the cost of most repairs.
In other words, your home insurance policy is really only practical for covering major events with the potential to be extremely costly. The home warranty, by contrast, is meant to cover an array of household needs that are either not covered by your home insurance or would otherwise be an impractical use of your home insurance. The home warranty allows you to, in a sense, supplement your disaster coverage with coverage for less catastrophic but still potentially costly issues.
It also gives you the power to select the scope of your coverage. Investopedia notes that “Most plans have a basic component that provides all homeowners who purchase a policy with certain coverages. Homeowners can also purchase one or more optional components that provide additional coverage at additional cost.”
Additional items that might be covered, according to Home Warranty of America, may include your doorbell, garage door opener, and exhaust fans. You should be aware, however, that additional coverage will not usually apply to structural aspects of your home, meaning a home warranty would not provide additional assurance against issues with windows, doors, or your roof, according to Bankrate.
What are the pros of a home warranty?
The pros of your home warranty are predominantly the convenience and protection you’ll get from your policy. In exchange for your annual premium, you’ll receive the following benefits:
Peace of Mind
The best thing you can say about a home warranty is that it should serve as a source of insulation against expensive and unexpected repairs. Provided the household component or appliance is covered and meets the conditions for qualifying as a claim, you can take comfort in knowing that there is a cap to how much you’ll pay for repairs, new parts, or even total replacement.
Hassle Free Service
Another major benefit of the home warranty is the time and energy you’ll save searching for trustworthy repair services. Your home warranty provider will have service agreements in place with an array of contractors and technicians. This means you don’t have to spend your time comparison shopping and crowdsourcing for the right local maintenance company. When you encounter a service need, you’ll simply file a claim. If approved, your services will be handled by a contractor or technician already affiliated with your warranty provider.
Freedom From Home Maintenance Work
Without a home warranty policy, you may be tempted to attempt repairs and replace parts yourself. If you’re pretty handy, this is a great way to save money. If you aren’t particularly handy, this may be a great way to waste time and perhaps even do more harm than good. As a bonus, you may even hurt yourself. If you’re already paying for a home warranty service, you’re likely to skip the DIY part and jump right to hiring a qualified professional.
After all is said and done, the home warranty is really only a benefit if it saves you money. The right home warranty policy should balance flexible coverage with a reasonable premium. When it comes to basic appliance repair, you might spend $100-$300 for a service call without a home warranty. But serious repairs to a central air condition system or a gas furnace could cost you in excess of $10,000 without a home warranty. At an average annual price of well below $1000, a home warranty could provide a meaningful discount on that expense at a fairly modest upfront cost.
What are the cons of a home warranty?
While there are several clear benefits to holding a home warranty, reaping these benefits isn’t always a straightforward proposition. There are a few potential drawbacks to a home warranty that you’ll want to consider first. Below are a few factors to consider as you decide whether or not a home warranty is right for you:
Annual Coverage Limits
Every policy is different, but many will come with a built-in annual coverage limit. If you max out your coverage at the beginning of the year with a major plumbing job, you may be on your own later in the year when your washing machine malfunctions. You may be able to up your coverage limit, but this will usually mean paying a higher premium.
Designated Service Providers
While it is certainly a time-saver to have your home warranty company choose service providers for you, it does take the control out of your hands to an extent. You aren’t in a position to comparison shop, to vet the service technicians who will be in your home, or to enlist the services of a highly recommended local repair person. If you’re the type who likes to shop around for repair persons, technicians, and maintenance providers, this condition may be a dealbreaker.
Service Call Fees
You should also be aware that the vast majority of home warranty policies include a fee just for a service visit. In most cases, you would be required to pay a sum of between $50 and $100 just for a consultation. You’ll incur this cost even if the consultation doesn’t result in service, which may occur if your warranty provider determines your claim doesn’t qualify for coverage.
As we’ve warned you throughout this feature, there are some circumstances under which a filed claim might not qualify for coverage. This is because many home warranty providers include a maintenance clause. According to Investopedia, “home warranties usually don’t cover components that haven’t been properly maintained…Furthermore, if the warranty company denies a claim, the homeowner will still have to pay the service fee and will also be responsible for repair costs.”
This means that certain responsibilities are incumbent upon you throughout the life of your appliances and other household components if you are to qualify for coverage at the time of filing a claim. But it’s not as simple as just routinely cleaning out the lint trap on your dryer. Some warranty maintenance clauses may be particularly stringent about the level of care expected not just from you, but throughout the lifecycle of a given appliance. If the previous owner failed to provide proper long term maintenance for an appliance, you might be penalized with a denied claim.
This is why it’s absolutely critical that you read the fine print before purchasing a home warranty policy. Review the coverage against the actual condition of your existing systems and appliances. This may tell you well in advance of a claim denial whether or not you would qualify for service in the event of a repair or replacement. It can also give you a sense of the responsibility you must take on preemptively to ensure that you are covered when something happens.
Long story short, coverage is not guaranteed. And if a major appliance breakage isn’t covered, then you have wasted your money.
Of course, that begs the key question…
Is a home warranty worth it?
A home warranty may be worth it but, like home insurance, it can depend both on the quality of your coverage and, quite frankly, whether or not you’re unfortunate enough to need it. A core irony with both home insurance and the home warranty is that you are paying for protection against events that you’re hoping won’t occur.
Of course, anybody who has ever owned a home knows that there’s always something in need of attention, maintenance, repairs and replacements. It’s simply a question of whether or not money saved through your policy will actually exceed the money you spend on both premiums and service calls.
Bankrate says that “The cost of a home warranty can range anywhere from $220 up to $1,767, according to HomeAdvisor. You can imagine more if you want enhanced coverage for such things as washers and dryers, pools and septic systems.”
Once you add in both the service fee for visits and the amount you must still pay out of pocket for parts and services, the math changes a little bit. If your refrigerator suddenly breaks in spite of proper care and maintenance, you will likely get your money’s worth out of a home warranty on the cost of replacement. By contrast, you might be able to hire a local repair person on your own reconnaissance to fix a malfunctioning dishwasher for the same price you’d pay just for a service consultation under a home warranty policy.
Of course, you can’t predict the future, but you can gauge the likelihood of needing a home warranty based on the cost, condition, and age of your home appliances. If you happen to own a number of comparatively expensive appliances, a home warranty could save you money on parts and replacement.
The takeaway is that a home warrant could prove worth it, but it’s something of a gamble.
What are some good alternatives to a home warranty?
When push comes to shove, this gamble can come with convenience and peace of mind. But it can also become a source of frustration. Obviously, not having to repair any appliances for a year or two is a good problem to have. But it also means you’ve essentially spent a year or two worth of premiums without getting anything in return.
That feeling may only be compounded should you be denied coverage of a claim due to maintenance issues or other fine print clauses. These experiences may incline the policy holder to question the actual value of a home warranty contract.
A smart alternative, suggests Investopedia, might be to create your own home maintenance savings fund. While this approach won’t necessarily carry the same discounted service, parts, and replacement benefits, you can place those funds in an interest bearing account. Doing so means that you not only keep the money that goes unspent on repairs every year, but you can actually make your money grow.
Of course, when you do face the need for service, the legwork will be on you. Without a home warranty service, it’s up to you to seek out and price compare service providers. But there is a certain amount of freedom in this responsibility. Whether you purchase a home warranty policy or not may simply be a matter of personal preference.
That said, if you do choose to pay for the peace of mind and convenience, be sure to do your due diligence. Compare rates and coverage offerings, and make sure you always read the fine print. Ultimately, getting value out of your home warranty policy will depend on how effectively the coverage applies to your specific needs. Make sure that you understand exactly what is covered, and what responsibility you must take as a homeowner in terms of care and maintenance in order to qualify for the full scope of this coverage.
Obviously, a home warranty can be useful for covering unplanned home repair and maintenance expenses. But what about the planned stuff? Is there any way to get help paying for big projects, renovations, and remodeling efforts? Of course! That’s why we’ve cataloged The Best Credit Cards for Home Remodeling in 2021.