Is A Home Warranty Worth It?

I bought my first home nearly three years ago. During the closing, my realtor said almost in passing "Oh, and the buyer is paying for a year of a home warranty with whatever company you want."

It sounded cool, and since I wasn't the one paying for it I thought "Why not?"

A year later, the warranty was nearing expiration and I had to actually make a choice: Should I renew the warranty or let is lapse? Here is what I wish I had known...

What is a home warranty?

When you buy an appliance, usually the store will try to sell you extra coverage on that appliance. Something like "If this refrigerator breaks down in the next 5-years we will repair or replace it." You can buy this peace of mind for some annual fee.

A home warranty is a lot like that; A home warranty is an annual coverage of the major appliances and systems inside your home. If something breaks, they help to cover the costs of repairing or replacing.

Sounds pretty good, right? They definitely can be, but you will want to do your research when choosing a home warranty company. You should check:

  1. The company's reputation - Check review sites and see how easy they are to work with or to file a claim with.

  2. The coverage - Home warranties will be very specific in what they do and do not cover, and under what circumstances.

  3. Existing coverage - If you have warranties on major appliances and systems already, then having another would be redundant.

  4. What do most home warranties cover?

    Every home warranty will be slightly different. If nothing else, understanding exactly what your home warranty covers and under what circumstances are the most important things to understand.

    That said, you should expect a home warranty to cover home systems like:

    • Electrical
    • Duct Work
    • HVAC
    • Interior Plumbing

    And major appliances, like:

    • Air conditioning
    • Dishwasher
    • Washing Machine
    • Dryer
    • Garage door opener
    • Garbage disposal
    • Oven, range, or cooktop
    • Refrigerator

    How much does a home warranty cost?

    Like everything else, it depends, but the average cost is between $300 and $650 a year.

    Some factors that might impact your home warranty cost are:

    • The company you choose;
    • Details like your home type and size;
    • Where you live;
    • Any additional coverage you want; like covering pool equipment.

    Additional Costs To Home Warranties

    There might be more costs to having a home warranty that the annual fee. For example, most home warranties will charge you a fee per service call. These range between $50 and $100 per call.

    You will also likely have a deductible or a co-pay, meaning that the home warranty will only cover a portion of the repair or appliance replacement cost.

    What else should I know when picking a home warranty?

    As mentioned before, you should check to see the reviews and quality of service the home warranty company provides. Remember, when you need them, you will likely be having an emergency. You are going to want a company that makes filing a claim easy and can work with your 24/7.

    Do they have a good contractor network?

    Some companies will force you to work specific contractors. You want a large network so that you know you are getting quality craftsmanship. Ideally, they let you choose who you get to work with.

    Is there a limit to the number of claims you can file?

    Some policies will have an annual maximum for what you can claim. These policies might be cheaper, but then you run the risk of having an emergency at the end of the year that you have to pay out of pocket.

    Does the warranty cover pre-existing issues?

    Chances are the warranty will not cover pre-existing issues. If you buy a home filled with broken appliances, you won't be able to get all new appliances for $300.

    Do you need a home warranty?

    This is a personal preference. You can think about how new your home and appliances are. If you think that you will have more than $300 in appliance repairs, then it is probably a great idea.

    If you feel like you are going to need a major repair in the next few years, then it is probably a good idea.

    If you are the kind of person who thinks $300 a year is a small price to avoid the worry, then it is a good idea.

    All that said, it's not a legal requirement and you might have warranties on your appliances or systems in your house already. If that is true, then you are paying to cover the same thing twice and you'd be better off not purchasing.