Home Warranty Pros and Cons
A home warranty is a contract that helps you to cover the cost of repairs or replacements for major home systems and appliances that break down. A home warranty can give you peace of mind, increase your home’s value, and help you to more successfully budget. It’s not right for everyone, though. Learn what a home warranty is, how it works, and the pros and cons of getting one in the guide below.
What Is a Home Warranty?
A home warranty is an annual service contract that covers the cost of repairs and replacements for major home systems and appliances that break down due to normal wear and tear. A home warranty focuses on the mechanical failures of household items, unlike homeowners insurance, which protects against damage from disasters or accidents.
Insurance is typically mandatory while you’re paying a mortgage, but a home warranty isn’t. A home warranty can, however, provide financial protection when older appliances and systems wear out. These warranties are particularly popular among first-time homebuyers and owners of older homes.
How Does a Home Warranty Work?
You’ll pay an annual or monthly premium for coverage once you purchase a home warranty. If a covered item breaks down, you can follow the process below to schedule a repair or replacement.
Filing a Claim
You need to file a claim as soon as a covered item malfunctions to use your home warranty. Follow the steps below.
- Contact your warranty company via phone or online portal. You can usually file a claim 24 hours a day, and a representative will get in touch with you within 2-3 business days.
- The company’s representative will put you in touch with a pre-vetted service technician.
- Schedule an appointment for the technician to come to your home and diagnose the problem.
- The technician will assess the issue and determine if your warranty covers the damage.
- If your warranty covers the item, the technician will complete repairs or arrange a replacement.
If your warranty doesn’t cover the item or part that’s damaged, you’ll have to pay for repairs out of pocket.
Service Call Fees
You’ll have to pay a service fee each time a technician visits your home in addition to your annual premium. This fee, also known as a deductible, typically ranges from $75 to $125. You’ll pay this amount to the technician whether your warranty covers the issue in question or not.
What Does a Home Warranty Cover?
Home warranty coverage varies among different providers and plans, but most companies cover the basics below.
Types of Home Warranty Plans
Most home warranty companies offer the three types of plans below.
- Appliance plans cover major home appliances such as refrigerators, washers, dryers, ovens, ranges, water heaters, and dishwashers.
- Combination plans cover appliances and systems.
- Systems plans cover home systems such as plumbing, electrical, and HVAC systems.
Some providers also offer combination plans with varying coverage caps that fit different budgets.
Add-on Coverage
You can add extras to your home warranty for additional fees as part of most plans. These cover the appliances and systems below, which not all homeowners have.
- Guest units
- Pool/spa
- Second refrigerator
- Septic tank and pump
- Well pump
Some companies also offer additional coverage for services such as limited roof leak repair, pest control, or HVAC tune-ups.
What Doesn’t a Home Warranty Cover?
A home warranty may not pay for an item even if your plan covers it. Most home warranty contracts exclude the parts and types of damage below.
- Accidental or purposeful damage
- Cosmetic defects
- Cosmetic parts such as knobs, dials, and shelves
- Improper installation or repair
- Insufficient maintenance
- Manufacturing defects
- Pre-existing conditions
- Rust, sediment, or corrosion
Always carefully review your contract to make sure you understand what’s included and excluded from coverage.
How Much Does a Home Warranty Cost?
The cost of a home warranty varies based on your coverage and which home warranty provider you choose. The full cost of a home warranty includes your annual premium, service fees, and extra costs of any optional add-on coverage.
Average Annual Premium
A home warranty typically costs $690 annually, or $54–$61 per month. Premium costs vary based on your location and what level of coverage you choose. Factors such as home size may change these. Your premium will remain the same no matter how many claims you file.
Average Service Call Fee
A service call fee is similar to a deductible you have to pay when you make a claim. You’ll pay this fee directly to the technician for each visit to your home. The average cost of a home warranty service fee ranges from $75–$125, though a few providers offer fees that are as low as $60. Some companies allow you to adjust your service fee in relation to your premium. You can choose a higher premium for a lower service fee and vice versa, for example.
Cost of Add-On Coverage
You can add certain items to your coverage for a small, additional monthly fee per item. These fees vary by provider. The cost of add-ons can vary from a few dollars a month to more than $30 per month.
Pros of a Home Warranty
The best home warranties mitigate stress and ease financial burdens. Consider the additional benefits below.
- Access to vetted service professionals: Home warranty companies work with trusted contractors, so you won’t have to find a reliable service provider yourself.
- Budget protection against unexpected repair/replacement costs: It’s easier to budget around a predictable monthly cost than it is to try to predict a large emergency repair or replacement cost.
- Convenience of having a one-call solution for multiple items: A home warranty allows you to call the same number for issues that involve everything from plumbing to refrigerator repair.
- Potential increase in home value or marketability: You can usually transfer home warranties when you sell your home, which provides extra security for potential homebuyers.
Cons of a Home Warranty
A home warranty doesn’t cover everything. It also comes with the potential drawbacks below.
- Cost may exceed value: If you don’t have any major issues during your contract term, you do not recoup any of the cost of the premiums.
- Doesn’t cover all repair/replacement costs: A home warranty isn’t a guarantee for every repair or replacement job you need. Exclusions, claim denials, and coverage caps can leave you paying out of pocket for certain issues.
- Possible overlap with existing coverage: If you already have homeowners insurance and manufacturer warranties, you may wind up spending extra for the same coverage.
- Service delays or limited contractor options: Your warranty company works with select contractors, so you may have to wait longer than usual for service. You may also have to work with companies you wouldn’t have otherwise hired.
Is a Home Warranty Worth It?
Determining whether a home warranty is worth the cost depends on your budget and your home’s condition. Consider the following factors when deciding whether a home warranty is a smart investment:
- Ability to cover repair/replacement costs out of pocket: If you have significant savings or an existing emergency fund, you may not need the added expense.
- Age and condition of home systems/appliances: If you’re moving into a new home with new appliances, you will probably need fewer repairs.
- Likelihood of selling the home soon: A home warranty can entice buyers by adding an additional layer of security.
- Personal preference for personally managing home repairs: You should probably avoid a home warranty if you want to choose which contractor performs your home repairs.
Weigh the costs of premiums and service fees against the costs of repairs before you decide whether a home warranty is right for you. Home warranties are usually the most valuable option for home buyers, sellers, and those who live in older homes that feature older appliances. They are the least valuable for owners of newer homes and appliances, experienced do-it-yourself enthusiasts, or anyone who wants control over repairs.
Alternatives to Buying a Home Warranty
Home warranties aren’t the only way to protect yourself against unexpected home repair costs. Consider the alternatives below.
Self-Insuring With an Emergency Fund
Set aside the equivalent amount of a warranty in a high-yield savings account. This gives you flexibility in how you spend the funds and allows you to choose your own repair professionals. If you don’t need to spend the money on repairs within the course of a year, you keep it.
Extended Manufacturer Warranties
A manufacturer’s extended warranty might cover newer appliances more successfully than a home warranty. Pay attention to contract details, since some plans may only cover manufacturing defects and materials but not labor.
Comprehensive Home Insurance Policies
Some homeowners insurance policies offer endorsements or riders that cover systems and appliances. These are usually more expensive than standard home warranties, but they offer broader protection.
Preventive Maintenance Agreements
Many local service providers offer preventive maintenance agreements that include regular check-ups and discounts on repairs. These agreements can help to prevent major breakdowns and give homeowners peace of mind. They may also offer priority scheduling or discounts on regular maintenance.
FAQ About Home Warranty Pros and Cons
What are the benefits of a home warranty?
The benefits of a home warranty include peace of mind when you’re buying a home and protection against unexpected repair and replacement costs for older systems and appliances.
What are the disadvantages of a home warranty?
The disadvantages of a home warranty include spending more money than you would have without one, not being able to pick your own technician for repair work, and not recouping your money if nothing goes wrong.
Do home warranties save you money?
Home warranties can save you money if your major appliances or systems need repair or replacement because of wear and tear.
Is a home warranty tax deductible?
A home warranty is not tax deductible if you use it on your primary residence. If the house is a rental property, though, or if you use part of your house for a home office, you can deduct portions of the home warranty.
Can you cancel a home warranty after closing?
Yes, you can cancel a home warranty after closing with many companies. You will lose access to the warranty’s benefits upon cancellation, though.
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