If you’re looking to buy a new home, you’ve likely heard about home warranty coverage. This type of warranty is designed to cover repairs and replacements of certain appliances and systems within the home. Having this sort of protection in place as a homebuyer or seller can be helpful, but the cost of home warranty coverage is often off-putting.
In this home warranty guide, you’ll learn how home warranty policies work, their pros and cons, and when a home warranty could be worth it. This will help you decide whether a home warranty policy is the right fit for your situation.
How does a home warranty policy work?
Home warranties are service contracts, which means they aren’t the same as home insurance policies. If anything covered in the contract needs repairs or replacing, the company you’ve signed a contract with will do the necessary repairs or replacements.
Typical home warranty coverage often includes repairs or replacements of appliances like refrigerators, ovens, washers and dryers, dishwashers, built-in microwaves, garbage disposals, and more. It’s also common to get coverage for your home’s systems, like the electrical system, plumbing system, and heating, venting, and air-conditioning systems.
But keep in mind that the type of coverage you get may depend on the home warranty plan you go with. For example, certain plans might cover only appliances, whereas others cover only home systems. If you want coverage for both home systems and appliances, you might need to pay for a more expensive plan. In addition, add-ons for systems and items not covered in the general policy could also be available. This may include coverage for pools, septic systems, sprinkler systems, and more.
Remember to check the fine print in your home warranty to understand what is covered. Even if you add a pool to your contract, it might not mean everything involved with the pool is covered. For example, the plumbing and electrical systems on the pool might be covered, but the jets and lights may not be included.
Pros of home warranty coverage
Here are reasons why you might want to opt for home warranty coverage if you buy a new home:
Peace of mind
If you’re a first-time homeowner, new to an area, or buying an older home, it could be worth it to get a home warranty for the peace of mind it gives. Not every house is a new build, which means existing home systems and appliances could be close to needing repairs or a replacement. With a reliable home warranty in place, it’s often as simple as getting in touch with your provider and having them take care of any covered issues.
Saves you time
Whether you’re handy with home improvements or not, making repairs on a house often takes a lot of time and effort. You have to diagnose the issue, figure out what parts and tools you need to fix it, and then do the actual maintenance or replacement.
If you have a busy schedule, it can be difficult to find the time, especially if you need to look at multiple issues. Having your home warranty provider send a professional contractor makes it easy to continue with your everyday life while it takes care of the problem.
Saves you money
Paying for emergency home repairs can easily set you back hundreds or thousands of dollars. If you consider the monthly cost of a home warranty, which may run between $40 to $50 each month, it could be well worth the fees if you’re getting a $1,500 hot water heater replaced. The same goes for replacing an air-conditioning system, which could typically cost thousands of dollars.
If you’re buying a home and the inspection shows certain kitchen appliances or systems are nearing their last legs, it might make sense to include a home warranty’s costs in your budgeting plan to help you save money down the road.
Can help you sell
From the perspective of a home seller, it could be the right move to include a home warranty for the buyer during a real estate transaction. This could sweeten the deal and give the buyer the comfort they need to move forward with the purchase. It could also help to reduce the potential headache a seller might have of dealing with any issues that come up after the house is sold. With a home warranty in place, the buyer can file a claim with the home warranty company instead of involving the seller.
Cons of home warranty coverage
Here are reasons why home warranty coverage might not be worth it:
Your warranty claim can be denied for multiple reasons, some of which you might not have any control over. However, a clear-cut denial of a claim typically falls under whether your warranty covers the item you want to be repaired or replaced. If you opted for a less expensive home warranty plan, you might not have as complete of coverage.
For example, having a plan that covers home systems won’t be much help if your oven fails and you need it replaced. Or your home system coverage might have some exclusions, like the filters or vents in your heating or cooling system.
In addition, some home warranty companies may deny a claim if they decide the applicable system or appliance hasn’t been properly maintained. Because your provider decides what “properly maintained” means, you could be left without the help you need even though you’re paying for home warranty coverage.
It’s not uncommon for home warranty companies to have a claims cap on how much they’ll pay for covered costs. If your claims cap is up to $3,000 per covered item, including costs for diagnosis and repair or replacement, you still might have to pay some money out of pocket if the coverage isn’t enough. For example, a $5,000 boiler replacement would still cost you at least $2,000, not including any additional service call fees.
The biggest con of home warranty coverage is that you have to pay for it, and it’s not exactly cheap. Hundreds of dollars a year for a service contract you might not need is money that could be used elsewhere in your budget, especially if you’ve been saving for a house. In fact, it might make sense to put the money you save from not having a home warranty policy into an emergency fund in case you do need to pay for repairs or replace an appliance.
Taking this approach can help you save money on potentially irrelevant coverage while still setting money aside in case you need it. However, you might need to put more money away than the coverage costs because big repairs and replacements can cost thousands of dollars.
How much does a home warranty cost?
Depending on the plan you select and the home warranty company you choose, home warranty coverage could range from $40 to $50 each month. This would end up being $480 to $600 per year. The monthly charge is called your premium, similar to an insurance policy.
The monthly or annual premium cost will go up with add-ons, but the price varies depending on what you want to add. For example, adding in a septic system might cost between $4 to $6 more per month. But adding a pool might be around $8 or more than $20 per month depending on the company.
In addition, you typically have to pay a service fee whenever a professional is sent to your home to repair or replace a covered item. This may range from $75 to $125, though it depends on the home warranty company. Some home warranty policies may also have deductibles.
Who are home warranties right for?
A home warranty may be a good option if you’re purchasing a home with older systems and appliances. If your home inspection shows the average age of the home’s systems and appliances is old and it’s likely something is going to need repairs or replacing, it could make sense to get a home warranty.
In addition, if you feel paying for home warranty coverage is worth it to avoid worrying about figuring out repairs or replacements down the road, then getting a policy likely makes sense. Anxiety and stress are hard to measure, but finances often play a big role in everyday worries. Paying a smaller sum now to protect against a bigger sum later could be the right thing to do for your financial security and general well-being.
Is a home warranty worth it?
Remember to consider the peace of mind that a home warranty policy can offer. If a major appliance or home system fails due to normal wear and tear, your home warranty could potentially save you thousands of dollars, which would likely make it worth the cost. But this likely makes the most sense if you’re buying a home with older appliances and systems.
A home warranty could potentially be a waste of money if you feel like you’re not getting enough from your coverage. This could be because you haven’t needed to use the coverage or because the repairs that were done cost less than what you’re paying for your home warranty policy.
Will a home warranty cover HVAC?
Many home warranty companies offer plans that cover HVAC systems. This can include coverage for your main air conditioning and heating components, as well as ductwork for both systems. But to know exactly what your home warranty plan covers, carefully read over the contract to see which parts of each system are included in the coverage. Certain parts, such as vents or filters, might not be covered even though other parts of the HVAC systems could be included.
Do you pay for repairs if you have home warranty coverage?
You don’t typically pay for expenses, including repairs or replacements, if your home warranty plan covers them. However, it’s common to pay service fees to your home warranty company for them to send someone out to diagnose the issue and solve it.
Be sure to read over your home warranty contract so you know what’s covered, as certain parts or components might not be included. For example, your provider might include the plumbing system in its coverage, but it may not cover the cost of replacing a bathtub or sink.
Is a home warranty the same as homeowners insurance?
Home warranties are not the same as homeowners insurance. Homeowners insurance typically covers natural perils, like wind, hail, or a falling tree limb. It may also cover accidental damage to your home and certain things attached to it, such as water damage in a room due to a burst pipe. If you're interested in home insurance, check out our list of the best home insurance companies.
Home warranty policies can help cover the costs of repairs or replacements involving home systems and appliances. If your refrigerator goes out and needs to be replaced, the cost can be covered by your home warranty. Or if your air-conditioning unit needs repairs, certain home warranty plans will cover the costs.
The bottom line
Are home warranties worth it? The answer depends on your situation. In many cases, they may not be. If the home you’re buying has new appliances and updated systems, it could make sense to skip the home warranty and put your money into an emergency fund. You’ll still be putting money away just in case, but you won’t be spending it on something you might not potentially need.
But if some of the appliances and systems in your potential home are older, getting home warranty coverage might not be the worst idea. Getting the peace of mind that you won’t be on the hook for thousands of dollars of repairs could be the right move in this situation.
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