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It’s a hot, humid summer morning that threatens to become another 90-degree day. You get out of bed, already sweating from the increasing heat. But something doesn’t feel right — you can not hear the steady sound of the air conditioner, and your home feels warmer than usual. With a groan, you get out of bed and make your way to your air conditioning unit. As you have already guessed, the entire system is broken.
If you have a home warranty plan, all you have to do is call your provider and file a claim. But if not, you are on your own, scrambling to find a local technician to come to your home.
Wondering if a home warranty is right for you? In this article, we break down different situations to help you decide if warranty coverage is worth it for your home.
- Pros and Cons of Home Warranties
- What Determines Whether Home Warranties Are Worth It?
- When ARE They Worth It?
- When AREN’T They Worth It?
- Do Home Warranties Save You Money?
- Bottom Line
Home Warranty Pros and Cons
A home warranty is a supplement to your home insurance. While a homeowners insurance policy covers unexpected damage to your home — such as from a fire, tornado, earthquake, etc. — a home warranty helps offset the cost of repairing or replacing home systems and appliances that fail due to normal wear and tear.
Since home appliances and systems can break down at the most unexpected times, a home warranty can be worth it for peace of mind alone. Instead of paying thousands of dollars when critical systems like your water heater or cooling system break, your home warranty provider will send a technician to your home and cover the cost to get it up and running again.
However, not all homeowners need a home warranty, so carefully weigh the pros and cons before choosing a coverage plan.
Home Warranty Pros
A home warranty has many advantages. For example, if you don’t have a home emergency fund, a broken system or appliance can drain your bank account. But with a home warranty plan, you don’t have to worry about spending all your money to get your systems back up and running. Other major advantages of home warranties include:
- Cover the cost to repair or replace home systems and appliances. You can choose a home warranty plan that covers your major home systems and appliances, such as your HVAC, electrical systems, plumbing and kitchen appliances.
- Provides peace of mind. If you have an older home, a home warranty can give you peace of mind knowing you will not have to drain your emergency fund if one of your appliances breaks down.
- Easily get technicians to your home. When an appliance or system breaks down in your home, you want a professional sent to your home as soon as possible. Instead of calling around to every plumber or electrician in town, your service provider will do the work for you.
- No need to wait to have appliances and systems fixed. If you don’t have an emergency fund, you may be tempted to do a quick fix to your home systems instead of a full repair or replacement. With a home warranty, you are more likely to have a professional fix what is broken.
Home Warranty Resources
- What is a Home Warranty?
- How Much Do Home Warranties Cost?
- Is a Home Warranty Worth It for You?
- Best Home Warranties in 2023
- Do Your Appliances Need Extended Warranties?
Home Warranty Cons
Home warranties are not the best option for every homeowner. Even though home warranty cost is generally low, each warranty requires a monthly premium plus a fee every time a service technician is sent to your home.
- Pay a monthly or annual premium. To get home warranty coverage, you need to pay a monthly or annual fee. If you have a new home with new appliances, you likely won’t have to worry as much about breakdowns so you wouldn’t benefit from additional warranty coverage.
- Pay a service call fee for every claim. Each time you file a claim, you’ll pay a service fee or deductible between $65 and $125, on average.
- Coverage limits and exclusions apply. The fine print of your service contract will tell you home much coverage you’ll get for each home system and appliance. The coverage cap is typically between $1,000 and $3,000 for home appliances, which might not be enough to completely cover repair costs in all cases.
- Plans get more expensive with more coverage. The more items you cover under your warranty, the more your plan will cost. If you have several add-ons, your fee will quickly become nearly $100 or more each month.
- You may need a home inspection. Although some warranty providers waive home inspection requirements, you may need to pass an inspection to qualify for a home warranty plan.
What Factors Affect Whether Home Warranties Are Worth It?
When systems break and appliances fail, the homeowner's headache becomes real. But if you are like many homeowners and wonder if a home warranty is worth it for you, then you should consider the following factors:
- Age of your house
- Your bank account
- Type of systems and appliances in your home
Age of Your House
If you have a new house with brand-new systems and appliances, a home warranty is probably not worth it. Home warranties are only worthwhile if you use them at least once a year, and if your home is new, the likelihood of one of your systems or appliances breaking is much lower.
But if your home is seven years old or more, a home warranty is likely worth the cost. The average lifespan of most home systems and appliances is between seven and 15 years, so as your systems and appliances approach this age, they will likely start to have problems and need to be replaced.
Your Bank Account
If you have a solid emergency fund, a home warranty may not be as worth it. Most average home repairs cost between $75 and $500, but the cost of replacing your household systems and appliances can range from $350 to more than $8,000, depending on the unit.
Since you do not want to completely empty your bank account if your major household systems and appliances break down, your emergency fund should include a large sum. That said, if you do not have more than $10,000 in your emergency fund, a home warranty policy is well worth it.
Type of Systems and Appliances in Your Home
In our opinion, a home warranty is worth it if you have standard home systems and appliances like an HVAC, stove and cooktop, dishwasher, clothes washer and dryer, etc. With a national plan average of $50 per month, a warranty will cover all of these appliances in the event of a repair or replacement.
However, not every home is a good candidate for a warranty. For example, it may not be worthwhile to purchase a comprehensive home warranty if you do not have central heating or cooling. These systems make up the bulk of coverage under system plans, so you'd be paying for coverage you'll likely never use.
A home warranty may also not be worth it if you have smart technology in your home. Most home warranty providers do not yet cover smart systems or even the smart components in your basic home appliances, such as a touchscreen on your refrigerator or a smart thermostat.
When ARE Home Warranties Worth It?
For many homeowners, home warranties can be worthwhile. Home warranties cover many things that your home insurance does not, and they can bring good peace of mind to those who do not have a large emergency fund. In addition, there are other circumstances in which a home warranty is worthwhile, such as if you are a first-time home buyer or a landlord.
Home Warranties ARE Worth It if You Are a First-Time Home Buyer
If you are a first-time homebuyer, a home warranty is an excellent idea. Because many new homeowners are previously renters who are used to landlords or companies taking care of all home repairs, they may not know as much about homeownership and maintenance. Instead of spending thousands of dollars to have a technician come to your home for a repair, with a home warranty, you can simply call your provider and they will take care of the rest.
Home Warranties ARE Worth It if You Are a Property Owner or Landlord
If you are a landlord or own multiple properties that you rent to tenants, a home warranty is one of the best ways to save money on annual repair costs. For a monthly premium and a small service fee, you can ensure coverage of all home systems and appliances.
Not only can a home warranty save you money, but it can also save you time. Instead of searching for a technician or handling repairs yourself, you can call your warranty provider and they will send a technician to fix the problem.
Home Warranties ARE Worth It if You Are a Home Seller
If you are selling your home, a home warranty can be an excellent incentive to attract potential buyers. Purchasing a home warranty for your home shows that you not only have confidence in your home's systems, but you are also willing to buy insurance for the next homeowners in case something happens.
Home warranties can actually make your house sell faster and for more money. According to a study by American Home Shield, homes in Tallahassee, Florida that had protection plans or a home warranty sold for an average of $2,300 more and spent 11 fewer days on the market.
Home Warranties ARE Worth It if You Are Not “Handy”
If you are not an exceptional do-it-yourselfer or have little experience performing home repairs, then you could benefit from a home warranty. If you do not know what you are doing as far as home repair, you could end up causing more harm than good.
When you have a home warranty, you do not have to worry about performing home repairs. As long as you maintain your home appliances and systems, your home warranty company will cover the costs and make sure your systems are working properly.
Home Warranties ARE Worth It if You Don’t Have an Emergency Fund
As we mentioned earlier, a home warranty can be a good idea if you do not have a large emergency fund. Since you want to have a good amount in your bank account to cover emergencies, you should not have to empty the bank every time you need to replace a major home system or appliance. If you have less than $10,000 in your bank account, you should invest in a home warranty.
Home Warranties ARE Worth It if You Want to Avoid Paying Thousands for New Appliances
If you're like hundreds of thousands of homeowners in the U.S., you probably don't want to spend thousands of dollars on a new home system or appliance. If you’re willing to spend as little as $50 per month, you can invest in a home warranty that will pay for the repair or replacement of your systems and appliances so that you don't have to.
When you know your systems and appliances are covered, you can save money for the things that really matter, like a vacation, home renovation or anything else that is important to you and your family.
When Are Home Warranties NOT Worth It?
Home warranties are not worth it for everyone. If you have a good emergency fund or have just bought a new construction, you do not need to invest in a home warranty right away.
Even though the reasons below suggest you do not need a home warranty right now, that does not mean you will not need one in the future. Home warranties are very useful as your home, systems and appliances age. So if you don't need one today, still keep home warranties in the back of your mind for the future.
Home Warranties Are NOT Worth It if You Purchase a New Construction
If you move into a brand-new house with brand-new home systems and appliances, you probably do not need a home warranty. The best way to make a home warranty worth it is to actually use it. But if your appliances are new, they are less likely to break, so you won't need to make any claims.
Home Warranties Are NOT Worth It if You Just Bought New Appliances
If you recently replaced your appliances or systems, a home warranty is not worth it. Most systems and appliances break after seven to 10 years, so a home warranty is not worthwhile until your new appliances begin to age.
Home Warranties Are NOT Worth It if You Have Good Workmanship or Manufacturer’s Warranties
Home warranties do not cover anything that is included in your home insurance policy or a manufacturer's warranty. Before investing in a home warranty, read through all manufacturer warranties for your home systems and appliances to see what is covered. If you find that several things overlap between your home warranty policy and the manufacturer's warranty, you probably will not get your money's worth when you purchase a home warranty.
What is Not Covered in a Home Warranty?
Although home warranties provide excellent coverage for many of your major appliances and home systems, these contracts do not cover everything. As a rule of thumb, home warranty contracts cover damage due to normal appliance wear and tear, but a home warranty is also not likely to cover the following:
- Repairs due to installation error, misuse and improper maintenance
- Repairs due to pests or pets
- Manufacturer defect or design
- Detected pre-existing conditions
- Rust, corrosion and sediment issues
- Structural problems (foundation, flooring, walls and paint)
- Removal of radon gas, mold and asbestos
- Commercial equipment
- Building code violations
- Zoning code violations
Because home warranties cover your basic home systems and appliances, these contracts do not often cover luxury items in your home, such as smart technology, swimming pools and spas. Some home warranty providers — such as Liberty Home Guard — offer additional coverage, but it will require an additional monthly cost.
Do Home Warranties Really Save You Money?
If you use your home warranty at least once per year, you have the opportunity to save money on the repair or replacement of your home system and appliances. Yet, as you can see in the chart below, the more claims you make, the more money you save. The exact amount you save depends on which system or appliance needs a repair, your service fee cost and your coverage limit, but overall, just two claims per year make your home warranty worth it.
The cost to repair certain systems and appliances, such as your air conditioner or water heater, is more expensive than other appliances, such as your refrigerator or clothes dryer. Furthermore, a total replacement will cost more than a repair. So if you need more replacements than you do repairs, or use your coverage to repair higher-value items, you’ll get more out of your home warranty.
The chart below shows an example of how much you could save in one year if you purchased a home warranty and made claims under your plan. This example uses a monthly premium of $50 and a service call fee of $100 per claim. Keep in mind that your rates may vary depending on your plan and location. In addition, each home warranty plan and provider has different coverage limits, so your exact savings will vary.
Bottom Line: Are Home Warranties Worth the Cost?
So are home warranties worth it? They certainly can be. The key to making your home warranty worthwhile is to file a claim whenever you find that a system or appliance is not working properly. Some people get more out of their home warranty than others, but if you do not have an emergency fund and use your warranty at least twice a year, you'll be one of the fortunate homeowners who gets the most out of their home warranty.