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Are Home Warranties Worth It?
By Andrea Norris MONEY RESEARCH COLLECTIVE
A home warranty can help you cover part of the repair and replacement costs of appliances and home systems, but at a cost of hundreds of dollars annually plus additional fees for service calls. You might be wondering whether home warranties are worth it. A home warranty may be a wise financial purchase for some homeowners–but not for all. Consider the following benefits and downsides of home warranty contracts to determine if a home warranty purchase makes sense for you.
5 benefits of purchasing a warranty for your home
Your decision to purchase a home warranty is a personal matter. Knowing if it’s right for you comes down to evaluating the pros and cons. Your first step should be to look into some common home warranty benefits.
1. Provides financial protection when your home needs major repairs
Even simple home repairs can be costly. However, some major repairs — such as those to air conditioning, heating, electrical and plumbing systems — may be downright unaffordable. A home warranty can make these financial burdens more manageable.
A home warranty can also save you from purchasing individual protection plans for your home systems and appliances, such as those you can buy through your power company, your heating and air conditioning company or your appliance dealer.
2. Reduces the number of unexpected expenses in your home
Sometimes you may see signs that an appliance is on its way out — such as a noisy dryer belt or a toilet that runs incessantly — but most home repairs are unexpected. You know they will happen eventually. You just don’t know when.
A home warranty helps you cover unexpected repairs, regardless of when they occur, without requiring you to dip deeply into your savings or take on debt to cover the costs.
3. Includes coverages that fit your needs
Many home warranty providers allow you to customize your coverage. Perhaps you only need appliance coverage. If your appliances are new, you might elect to carry only home system coverage. Most providers also offer comprehensive home warranty policies that include appliance and home systems coverage under one discounted policy. The best home warranties also allow you to purchase item-specific coverage, including protection for in-ground spa pumps, countertop ice machines, second refrigerators, freezers, and other appliances and systems. Some even offer coverage for roofs.
4. May create savings that can cover home upgrades
The less you have to pay for home repairs or to replace appliances, the more money you’ll have to update your home. Home warranty premiums may be more affordable than repair and replacement costs for those who live in older homes with well-used appliances and home systems. A home warranty can help you keep those things running without a big hit to your bank account. By avoiding the worst of unexpected home repair expenses, you may be able to afford to begin replacing appliances, updating your plumbing and electrical systems or making other home upgrades.
5. Protects first-time homebuyers who aren’t prepared to replace whole-home systems
Many first-time homebuyers use much of their savings on a down payment for their new home. They don’t have the sale of a previous home to cover the down payment or other costs of buying a home. They may not have the money to repair an air conditioner, a major appliance or even a broken shower tap. A home warranty can help first-time homebuyers with home repair costs when they can’t afford those out-of-pocket expenses.
The downsides of home warranty coverage
While the pros of home warranties may outweigh the cons for some homeowners, as with any purchase, you should weigh the downsides against the benefits before deciding whether a home warranty purchase is a good choice. Home warranties are not for everyone. You’ll have monthly fees to pay that average from $30 to $60 per month, but can be considerably higher. And even the best home warranties have coverage limits. They also may require that you use only certain repair services, which limits your choice of who does the work on your covered items and systems. So consider the following downsides carefully.
1. Coverage limits
Home warranty plans don’t cover everything in your home. If your security system malfunctions and isn’t included in your warranty coverage, you’ll have to pay out-of-pocket for repairing or replacing it. Among other things, many home warranty companies exclude solar energy systems, sprinkler systems, garage doors, roofs, and hot tubs from coverage.
Many home warranty providers place dollar limits on the amount they will pay for specified repairs or replacements, even if the warranty covers them. Quite often, high-end appliance replacement can exceed such limits. Suppose one of the state-of-the-art appliances in your gourmet kitchen can’t be fixed. Your warranty company may only pay to replace it with a cheaper model that lacks the bells-and-whistles.
Most home warranty contracts include replacement and repair coverage caps on the various appliances and home systems they cover, and sometimes those caps will be lower than the repair or replacement cost. For example, suppose the coverage cap on a refrigerator is $1,300, and the average cost of a new refrigerator is $1,750. Your home warranty would cover $1,300 for the new fridge, but you’d have to pay the remaining $450. And that $450 would be in addition to your monthly payment and your service fee. Depending on your budget, this may or may not be a good deal.
Some warranty providers place a cap on each covered item. Others might have a cap for a group of items, which can be a problem if you require a few repairs or replacements on items within the same group. Be sure you know what and how much coverage your warranty offers.
2. Service fees
Just because you’ve paid your monthly home warranty charges doesn’t mean that you’ll pay nothing for repairs to covered appliances, fixtures, and systems. You’ll pay a service fee to the contractor that ranges, on average, from $75 to $125. If your warranty provider determines your warranty covers the repair or replacement, it will cover any remaining costs, including labor.
3. Warranty claims process
While the claims process for a warranty provider might appear straightforward, you might find it’s easier said than done. Claim processing may take longer than scheduling the repair with a contractor you already know and trust.
When you’re covered by a home warranty and you have a broken appliance or problem with a home system, you need to contact your warranty provider and report the issue. Your warranty company will refer you to an approved service provider in your area. If you have a favorite, trusted repair person you like to use, you may no longer be able to turn to them for repairs covered by your home warranty. The approved service provider will assess the problem and advise you on what will be required to resolve the issue.
You can see how this process could become convoluted if it’s not handled efficiently by the warranty company. A reliable company will usually schedule a contractor within 48 hours of processing your initial request for a service visit, but not all warranty companies will act so quickly. And bear in mind that you might find yourself in a dispute between your home warranty provider and the contractor if the contractor makes the repair and the warranty company ultimately denies the claim. In such a situation, you’ll be responsible for paying for the repair or replacement and filing an appeal with your warranty company.
This potential for three-way disputes among the homeowner, the service technician, and the home warranty company shows why you should pay close attention to customer reviews of the claims process for any warranty company you’re considering.
4. Liability waivers
While all home warranty companies claim that they deal fairly with their customers and abide by their service contracts, nearly all of them require their customers to waive their right to sue them in the event that they breach their contract, engage in unfair and deceptive practices, or otherwise cause financial harm. Most also forbid their customers from participating in class action suits and from recovering attorneys’ fees, even if their claims are ultimately successful. This means that consumers often have no meaningful way to hold their home warranty company to its promises. At most, warranty companies may allow you to make your case to an arbitrator that they themselves choose.
5. Maintenance requirements
Many home warranty policies impose significant limitations on repairs and replacements to appliances and systems that, in the opinion of the warranty company, have not been properly maintained. If a repair person detects signs of neglect or if you can’t provide documentation of proper maintenance, home warranty policies may not cover the repair cost.
What constitutes proper maintenance can vary by warranty provider and is often a source of dispute between some home warranty companies and policyholders. Thoroughly research how a provider determines improper maintenance before buying a policy and follow any maintenance requirements to ensure your claims get paid.
6. Service provider selection
Home warranty companies have a financial interest in having your home systems repaired by the least expensive service technicians. They will not generally allow you to use any service provider you choose, regardless of how much he or she charges. So if you’ve had repairs made in the past by a provider that’s known for top-notch service – and charges accordingly – you may find yourself forced to use a repair person who’s unknown to you and charges less. There’s a built-in conflict between the homeowner’s interest in having quality work and the warranty company’s interest in having the work done inexpensively. Pay close attention to reports of how any home warranty company you’re considering manages this conflict.
Who should purchase a home warranty?
If you’re still wondering whether a home warranty’s worth the cost, consider whether any of the following scenarios applies to you.
First-time buyers
A home warranty can be helpful to first-time homebuyers who are unprepared to pay the full cost of home repairs or don’t have much left in savings after purchasing a home.
If you’re looking to buy your first home, you can sometimes purchase a homebuyer’s warranty plan from your real estate agent. But you’ll likely be better off purchasing a policy directly from a home warranty provider. That way, you can do the necessary research to pick the best provider for your needs and save money by buying direct.
Sometimes people who are looking to sell their house will purchase a transferable home warranty as an enticement to prospective buyers. If the home you’re considering doesn’t come with a warranty, you can negotiate with the seller to provide one at his or her expense.
Quite often, first-time homebuyers have never had to hire a contractor or repair person. Or maybe they’ve moved to a new area and don’t know any local service techs. Buying a home warranty can provide some assurance (though not a guarantee) that competent contractors will perform the necessary repairs.
Budgeters and savers
If you feel more financially secure when you stick to a predictable monthly budget, a home warranty can help you avoid paying the full cost of unexpected repairs that can throw your budget out of whack. You can budget for the monthly or annual cost of your warranty payment and know in advance what you’ll owe for most contractor service calls — a fee that will be far less than most repair bills.
If you’re saving up an emergency fund, you might not like the thought of using what little savings you’ve accumulated to repair or replace pricey appliances. If you’re one of those people, consider that a home warranty can lessen the financial pain of having to dip deeply into your savings to maintain your home.
Home sellers
A home seller may find it beneficial to purchase a home warranty for two reasons. First, a home warranty can help cover the cost of repairing an appliance or system that breaks down while the house is under contract. Additionally, a home seller can purchase a limited-time warranty, typically one year, to cover the home for a period after the sale. Such a warranty can help new potential home buyers feel confident that there will be little chance they’ll have to cover a significant immediate repair or replacement if they purchase the home.
Should I get a home warranty?
If you worry that you’ll be unable to cover unexpected home repair bills, a home warranty can provide reassurance that you have a financial safety net for those expenses. Suppose you don’t have an emergency fund or you anticipate having other unforeseen expenses, such as medical bills. In those cases, a home warranty can allow you to reserve your emergency fund for other things.
A home warranty is probably unnecessary if you have the technical skills and tools to complete some home repairs. However, if you have no choice but to hire someone each time you need a repair, a warranty may save you money. Additionally, suppose you’d rather not be bothered choosing a contractor when a repair is needed. In that case, a home warranty can save you the hassle of reading contractor reviews and asking friends and families for recommendations.
For many homeowners, a home warranty can help protect your investment and cover part of your repair costs. A home warranty might also make sense if you have high-end appliances and want to ensure you can afford to repair or replace them if necessary. However, if you own a brand new home with house systems and appliances covered by manufacturer warranties, buying a home warranty will likely be unnecessary.
Is this measure of protection for you?
Is a home warranty right for you? There are no one-size-fits-all answers to this question. You must consider your financial situation and the age and condition of your home’s appliances and systems to determine if a home warranty makes sense. Carefully consider the pros and cons of home warranty coverage and how you will cover repair costs if you don’t purchase a home warranty.
If, after weighing the benefits and downsides of home warranties and analyzing your financial situation, you decide a home warranty is right for you, do your homework. Thoroughly research home warranty companies and get quotes. Determine what a policy will and will not cover. Look out for coverage limits or caps and associated service fees. Find a reputable company that hires careful contractors and provides a policy that meets your needs and fits your budget.
