Are Home Warranties Worth the Cost?

Home warranties are relatively affordable and offer peace of mind for homeowners, but are they always worth the cost? Much of that depends on the condition of the systems and appliances in your home and how much you have socked away in an emergency savings fund.

The average homeowner pays $300 to $600 a year on a basic home warranty, though more comprehensive plans can surpass $1,400. That cost could be worth it, though: With the best home warranties, homeowners can expect to pay a low service fee when a covered component breaks down rather than the full cost of repair.

Knowing you’re only on the hook for a manageable service fee can be reassuring, but if your home systems and appliances don’t break down often, you might wind up spending a lot of money on a home warranty without tapping into its value.

So when is a home warranty worth the cost, and when should you pass on the offer? Let’s dive in.

What Is a Home Warranty?

A home warranty is a home service contract that covers the repair or replacement of various systems and appliances in your home. If an appliance breaks or you have a plumbing or electrical issue, you can call the home warranty company, which will send out one of its contracted home service providers to evaluate and fix the problem.

Home Warranty vs. Homeowners Insurance

Some homeowners confuse home warranties with homeowners insurance, but they’re actually two different products:

• A home warranty covers general wear and tear of major appliances and systems, after you pay a service fee. You can purchase a home warranty at any time, but they’re a popular option when closing on a house.
• Homeowners insurance pays for damage to your house (the structure and what’s inside) after covered events, like a fire, theft, or storm damage. Rather than a service fee, homeowners typically pay a deductible. Homeowners insurance is generally required if you have a mortgage.

What Does a Home Warranty Cover?

When you purchase a home warranty, you can typically choose from a systems-only plan, an appliances-only plan, or a total home warranty plan that covers both. Comprehensive home warranty plans are usually the best value. You can also choose optional upgrades to round out your coverage as needed.

*This table is not comprehensive. Coverages vary by home warranty company.

Home warranties don’t cover everything. Read the fine print carefully to see what is and isn’t covered before purchasing. Otherwise, you may not discover that a certain appliance isn’t covered until it breaks down.

When reviewing the contract, look for common exclusions such as:

• Preexisting conditions: If an appliance or system was already damaged when you purchased the home warranty, it likely wouldn’t be covered when you file a claim. Home warranty companies may look at what was reported on your initial home inspection to determine if an appliance or system had a preexisting condition.
• Lack of routine maintenance: If you don’t keep up with regular maintenance for a system or appliance, your home warranty company could reject the claim.
• Improper installation: If the contractor reports that an appliance was not originally installed properly—and that the improper installation led to the breakdown—your warranty may exclude it from coverage.
• Structural issues: Your home’s foundation, doors, windows, walls, and other structural components are likely not covered by a home warranty.
• Damage outside general wear and tear: Home warranties only cover regular wear and tear. If a person, natural disaster, or other intentional act damages the covered appliance or system, the home warranty may not cover it.
• Other exclusions: Read the fine print carefully to locate other unique exclusions. For example, your shower faucet outer hardware may be covered, but the internal components may not be. Similarly, your sewage pipe may be covered unless it is damaged by tree roots.

Pros and Cons of Home Warranties

Home warranties have their advantages, but there are also drawbacks to consider before purchasing one:

Pros

• Convenience: When you first move into your new home, you may not have established relationships with plumbers, HVAC technicians, and appliance repair specialists. If anything needs to be repaired, you can simply call the home warranty company, which will dispatch a vetted contractor with experience completing similar types of repairs.
• Relatively affordable: Home warranties cost as little as $300 a year, depending on the amount of coverage you get. Assuming your home needs expensive repairs during the duration of the warranty, you could actually save money with a home warranty.
• Peace of mind: Even if you don’t end up using the home warranty—or don’t use it often enough to get your money’s worth—you might still appreciate the peace of mind the warranty offers. For some, it’s much easier to budget for roughly $50 a month for the cost of the warranty rather than plan ahead for expensive, unexpected repairs around the house.

Cons

• Service call fees: Though the cost of the repair itself is covered, you’ll still have to pay a service fee to have a contractor come out when something breaks down. Many home warranty companies offer variable service fees—the higher your monthly premium, the lower your service call fee.
• Complicated contract clauses: Understanding what is and isn’t covered can be challenging, but it’s important to thoroughly read the contract before signing up for a home warranty. Otherwise, you may not get the comprehensive coverage you were expecting.
• You might not use it: Generally, a home warranty only lasts a year, meaning you may renew it a few times before you ever even need to file a claim.

How Much Does a Home Warranty Cost?

The average home warranty costs $600 a year ($50 a month). On the low end, home warranties can cost as little as $300 a year ($25 a month), but some warranties can exceed $1,400 a year—typically for more comprehensive plans with add-ons and low service fees.

When shopping for a home warranty, compare the cost of appliances-only and systems-only plans with a combination plan. Usually, getting a warranty that covers both appliances and systems is only a few dollars more than a plan that only covers one or the other—making combination plans the best deal.

Can Home Warranties Save You Money?

Home warranties can save you money if you have to repair damage to major home systems, like your HVAC system or plumbing. Home warranties can be especially valuable if you own an older home with aging appliances and systems; new-built homes are generally covered by manufacturer’s warranties for several years, and any new appliances also typically come with their own warranties.

Keep in mind that home warranties cover general wear and tear. Your best defense is to have a home warranty and homeowners insurance; the latter covers damage to your home and its contents outside of general wear and tear.

When Is a Home Warranty Worth the Cost?

To determine whether a home warranty is worth the cost, inspect your home systems and consider what you might have to pay for down the line. If it’s possible you’ll encounter high repair costs in the coming years, a home warranty may be worth it.

The table below breaks down common home repairs and the average cost to fix them. When comparing your potential savings with and without a warranty, remember that home warranties generally cost $300 to $600 annually, plus a $50 to $150 service fee.

You can purchase a home warranty at any time, though it often makes sense to buy one when you purchase a house. Depending on the market, you may even be able to negotiate for the sellers to pay for your home warranty for the first year.

If you currently own a home, you might want to buy a home warranty if your appliances or systems are getting older. Alternatively, you can start contributing money to an emergency fund to cover the cost of home repairs down the line.

Frequently Asked Questions

Do home warranties cover roofs?

Some home warranties may cover roofs, but this is typically available as an add-on. However, this warranty upgrade typically only covers roof repair, like when you have a leaky roof. It will not cover a replacement roof.

Do home warranties cover solar panels?

Home warranties do not cover solar panels. However, when you purchase solar panels for your home, they typically come with an extensive manufacturer’s warranty. Your homeowners insurance policy may also cover damage to solar panels.

Do home warranties cover windows?

Windows are not covered by a home warranty. In fact, home warranties do not cover any structural elements, including the foundation, doors, and walls.

Do home warranties cover wells and septic systems?

Home warranty companies may include wells and septic systems in their coverage, and others may offer coverage as an optional add-on. Read the fine print of any home warranty you’re considering purchasing to be sure.

How long do home warranties last?

Most home warranties last for one year. At the end of the coverage period, you can renew your warranty, shop around for a different provider, or drop coverage altogether.

Conclusion

Home warranties are worth the cost if you own a house with aging appliances and systems. Buying a home warranty can also offer peace of mind: For as little as $25 a month, you don’t have to worry about how you’ll afford major home systems and appliance repair, should something break down.

However, if you purchased a new home already backed by a manufacturer’s warranty or have enough money set aside in an emergency fund, a home warranty may not be right for you.