Are Home Warranties Worth It, And What Do They Cover?

Homeownership has plenty of advantages. But one of the biggest downsides is that anytime something goes wrong, you’re on the hook for it. And an unexpected home repair can easily cost thousands of dollars.

That’s where home warranties come in. These plans serve sort of like an insurance policy, but only on certain appliances and systems within your home. If something goes wrong that’s covered by your home warranty, the warranty foots the bill.

Of course, home warranties may not be right for everyone. They’re an added cost that doesn’t necessarily cover everything in your home. In this guide, we’ll help to decide whether one is right for you by answering the question of whether home warranties are worth it.

What Is A Home Warranty?

A home warranty, similar to a home service contract or home service plan, is an optional contract entered into by the homeowner that offers home appliance or home system repairs and replacements in exchange for a monthly recurring fee.

Covered appliances and services may include your washer and dryer, refrigerator and other kitchen appliances, furnace, HVAC, plumbing, electrical system and more.

When something breaks down in your home and it’s covered by your warranty, you’d file a claim to have it repaired or replaced. And just like insurance policies, you may have to pay a service fee before the warranty covers the rest.

A home warranty is a different type of coverage than homeowners insurance or mortgage insurance, which cover different aspects of your major investment.

Differences Between Home Warranties And Homeowners Insurance

Unlike home warranties, homeowners insurance is required when you buy a home using a mortgage loan. It’s often rolled into your mortgage payment and into an escrow account, but some plans may allow you to pay annually in advance for a discounted rate.

Homeowners insurance covers unexpected events that cause damage to your home, such as a tree falling onto your roof and the resulting repair costs.

The key difference between a home warranty and a homeowners insurance policy is when they apply. A homeowners insurance policy doesn’t cover wear and tear of your home’s appliances and systems. Instead, it covers unexpected disasters. So, it wouldn’t apply if your washing machine broke down, but it would apply if that same washing machine was damaged in a fire.

Homeowners insurance also covers liability, which would apply if your dog bites the mail person or someone is injured on your property. Additionally, homeowners insurance covers potential vandalism or theft on your property.

Home warranties, on the other hand, cover anticipated repairs and replacements that need to be made throughout the lifecycle of your home systems and appliances. This usually includes normal wear and tear, however, it’s important to read all the fine print and reviews of your home warranty to be sure it covers what you expect it to.

Is A Home Warranty Plan Worth It?

Home warranties can save you money on certain repairs and replacements in your home, but they may not be right for everyone. There are a few things to consider when deciding whether a home warranty will be worth it for you.

What Home Warranties Can Cover

First, let’s discuss some of the major appliances and systems that may be covered by a home warranty.

Appliances Covered Under Home Warranties

The following appliances are often covered under home warranties:

• Washers
• Dryers
• Refrigerators
• Stoves
• Dishwashers

Systems Covered Under Home Warranties

The following systems are often covered under home warranties:

• HVAC
• Water heaters
• Plumbing
• Electrical

What Home Warranties Won’t Cover

While it’s important to talk about what a home warranty does cover, it’s just as important to discuss what it doesn’t cover. The following are just a few common things your home warranty will not likely cover:

• Structural issues and defects
• Preexisting conditions
• Manufacturer defects
• Improper maintenance or installation
• Misuse or neglect
• Windows and doors
• Foundations
• Small or handheld appliances
• Cosmetic damage

Pros And Cons Of Home Warranties

Home warranties have some key advantages but also some downsides worth considering.

Pros

Here are some of the advantages of having a home warranty:

• Peace of mind: Home repairs can be very expensive, and you don’t always see them coming. A home warranty can provide the peace of mind that if a major expense comes up, it will be covered.
• Reduced and predictable costs: Without a home warranty, your repair costs could equal thousands of dollars. But with a warranty, you know the cost of covered repairs will be limited to your deductible.
• No DIY skills required: Many homeowners find themselves doing their own repairs to avoid paying the money for a professional to do it. Unfortunately, this can lead to even more problems down the road. Additionally, certain repairs, such as electrical, are downright dangerous to do yourself. With a home warranty, you can outsource the job without the high cost.
• Affordability: Home warranties aren’t as expensive as you might think. The amount you’ll pay largely depends on the type of coverage you want. The more comprehensive the plan, the more expensive it will be.
• Convenience: When you file a claim with your home warranty, you’ll be able to work with a network of local professionals. It’s far more convenient to choose between a handful of already-vetted plumbers than to research all of those in your city.

Cons

Here are some downsides of home warranties:

• Coverage limits: Home warranties may have a dollar limit for repairs and replacement, either per claim or per year. A particularly expensive problem could eat up your entire coverage limit, leaving you on the hook for the remaining expenses that year.
• Fine print that might be overlooked: Even if a particular appliance or system is covered by your warranty, the fine print is likely to include situations where the company doesn’t have to cover it. For example, your HVAC claim may be denied if you haven’t had your system regularly checked and maintained.
• The possibility of not being needed: There’s always the chance that you’ll spend a large chunk of money on your home warranty and not have anything go wrong. In retrospect, you may wish you hadn’t purchased the warranty.
• Exclusions are likely: Not every home warranty covers every appliance and system. Some exclude certain things, while others require that you upgrade to a more expensive policy to ensure everything is covered.
• Less control: When you file a home warranty claim, you’re limited to using a professional within the company’s network. Additionally, you won’t get a say in whether the item is repaired or replaced, and may not get a say over the brand.

How Much Do Home Warranties Cost?

A typical home warranty costs between $300 and $600 per year, which comes to between $25 and $50 per month. Of course, this is usually the cost of basic coverage. Many warranty companies also offer more comprehensive plans, which can add anywhere from $100 to $500 to your annual costs.

Of course, the monthly cost of a home warranty doesn’t necessarily include all your costs. When you file a claim, you’ll usually have to pay a service fee. This service fee is similar to the deductible you might pay for other types of insurance, and it usually costs between $50 and $100 per visit.

Should You Get A Home Warranty?

If you’re a new homeowner still learning about the costs of maintaining a home, you may benefit from the peace of mind that a home warranty plan offers.

If you bought an older home that has significant wear and tear and appliances that are mid-to-late stage in their life cycle, then you may bank on them needing significant repair or replacement and decide that the cost of a home warranty is worth the investment.

On the other hand, if you’re buying a brand-new home where everything inside is under warranty for a certain period, then a home warranty might be redundant.

A thorough home inspection should uncover any major concerns about the condition of your home, its appliances, its electrical, plumbing and HVAC systems. This would be the time to potentially negotiate a one-year home warranty with the sellers in the form of a seller concession.

On the other hand, if you’d prefer to have the home move-in ready, you may opt to negotiate other terms instead, such as requesting the seller fix or replace items that may be on their last legs.

FAQs On Home Warranties

Are you considering purchasing a home warranty? Here are a few more things you should know.

Do I need a home warranty?

A home warranty isn’t necessary in the same way that homeowners insurance is. However, it can significantly reduce your maintenance costs, especially when expensive repairs come up, or an appliance needs to be replaced. Only you can decide whether it’s the right move for you.

Will a home warranty cover something already broken?

Home warranties generally don’t cover preexisting conditions. If you purchase a home with a refrigerator that doesn’t work, you won’t be able to buy a home warranty and then file a claim for it. However, home warranties may cover preexisting conditions that were undetectable.

What is the best home warranty to get?

There are many companies on the market that offer home warranties. Here are some of the best home warranty companies to consider:

• Select Home Warranty
• Choice Home Warranty
• First American Home Warranty
• American Home Shield
• American Residential Warranty
• Cinch Home Services

The Bottom Line

Buying a home is a huge investment, and chances are that you want to protect that investment in every way you can. A home warranty can help you do just that by covering costly repairs and replacements for the various appliances and systems within your home.

Of course, buying a home warranty comes much later in the home buying process. If you’re ready to start that process, reach out to Rocket Homes^SM and connect with a Verified Partner Agent to learn more about buying a home.