Do You Need a Home Warranty?

A home warranty is a contract that protects your appliances, home and its critical systems from break-downs or damage. The best home warranties offer protection not included in conventional home insurance policies and can drastically decrease the yearly cost of maintaining your home.

We’ll break down the good and the bad of home warranties to help you decide whether you need a home warranty or not.

Home warranty vs. homeowners insurance: how they differ

It’s easy to confuse home warranties with homeowners insurance, but there are some key differences between the two. Homeowners insurance covers damage to your home and personal possessions due to unexpected events like fire, property crime and some natural events.

A home warranty, on the other hand, is a service contract that covers expected repair or replacement costs for major systems and appliances in your home. Most lenders require homeowners insurance, while home warranties remain optional.

For example, if your electrical system needs repair due to damage or normal wear, your home warranty company would typically cover the repair expenses for that system. To cover repairs with a home warranty, you must file a claim and pay a service fee for the repairs before the company sends a contractor to do the work.

If your home is damaged in a fire, however, the repairs would probably be covered by your homeowners insurance. As with a home warranty, you’d need to file a claim with your insurance company and have an agent assess the damage to receive a payout on your policy.

The pros and cons of home warranties

Home warranties can be helpful in some situations, but they’re not a good fit for every home or homeowner. Before purchasing a home warranty, familiarize yourself with the pros and cons of home warranties.

Home warranty pros

Fewer unanticipated repair costs

Expensive repair costs can pop up when you own a home, but a home warranty can help you plan for repair and replacement costs to avoid financial strain down the line. Rather than worrying about paying for unexpected repairs, you can purchase a home warranty for peace of mind.

Without a home warranty, if your air conditioning suddenly system breaks down, you could suddenly receive a bill for thousands of dollars to repair or replace it. A home warranty that covers air conditioning systems would protect you against this unanticipated cost. With a home warranty, you would simply file a claim and pay the applicable service fee (generally $50 to $100). Then, your home warranty company would pay for the remaining costs of the replacement.

Helps protect the value of a home

The major systems in your house — namely, your plumbing, electrical, heating and cooling systems — alongside your major appliances contribute to your home’s worth. A home warranty offers a way to preserve these appliances and systems to protect your home’s value.

Some wear and tear on your appliances and systems is inevitable, regardless of how well you care for them. Over time, items simply break down and eventually need repair or replacement to maintain their function. If you don’t complete these repairs and replacements in a timely manner, your home can lose value. A home warranty can cover the costs of those repairs and replacements.

Saves you time and effort

Having a home warranty means you don’t have to stress when a major system or appliance in your home breaks down. With a warranty in place, you simply contact your home warranty company to make a claim, and it takes care of scheduling and completing repairs. If you don’t have a home warranty, you’ll have to collect quotes from contractors or tackle the repairs yourself.

Home warranty cons

Claim disputes over maintenance are common

Home warranties only cover repairs or replacement costs for items in your home that you’ve properly maintained. Unfortunately, what constitutes proper maintenance may be up for interpretation and these ambiguities can lead to disputes between you and your home warranty provider.

When it comes to your systems and appliances, a home warranty company may assert that you failed to properly maintain the equipment and deny your claim. Denied claims are common complaints on home warranty consumer reports.

If your home warranty denies your claim, you’ll be left with the full bill for the repairs or replacements. Even if your home warranty company eventually agrees to pay the claim, you may find yourself in a frustrating argument with the company.

To avoid claim disputes, read your policy’s fine print and understand your rights when it’s time to service something in your home.

Paying all year on the off chance that you’ll need repairs

Home warranties are generally inexpensive compared to repairing or replacing integral systems and appliances in your home. However, if you don’t need to file any claims during your home warranty period, the warranty premiums can feel like a waste.

Appliances and systems in your home can break down at any point, but you can also go years without needing to file a claim. In those years, you may only get peace of mind in exchange for your premiums. Weigh the costs of your home protection warranty plan against the likelihood of needing repairs to determine whether a home warranty is worth it.

Not always free to choose your own contractor

If you need repairs or replacement through your home warranty, you can't always choose your preferred expert to complete that work. Oftentimes, your home warranty company reserves the right to choose the contractor who repairs and installs replacements for an approved claim. If you have a preferred contractor or don’t like the contractor your home warranty company selects, you may not have a say in the matter.

Moreover, warranty contracts often say that replacements must only match the quality of the original item. So, you may not be able to choose the brand or model of replacement the home warranty company provides.

When it’s worth purchasing a home warranty plan

Whether or not it’s worth purchasing a home warranty plan depends on several factors, including your financial situation and the condition of your home. Generally, a home warranty plan is worth purchasing if you expect to replace several systems within the coverage period. For example, replacing a furnace typically costs $3,000 or more, so a home warranty plan comes in handy if you need to replace your furnace during your warranty period.

Purchasing a home warranty plan may also benefit you if you bought a previously owned home. Your home inspector should tell you if any systems or appliances in the home will need repairs or replacements soon. It’s also a good idea to ask the seller about the maintenance history of all the major home components. As these components near the end of their lifespans, a home warranty plan will help you handle those costs.

Note that most home warranty companies don’t cover pre-existing issues, however. These include any defects or malfunctions in a system or appliance present before the start of your home warranty coverage. Companies that do cover pre-existing conditions usually only cover these issues if you were unaware of them at the time you purchased coverage. Read the terms of each home warranty contract carefully to see how different providers treat pre-existing conditions.

When it’s not worth purchasing a home warranty plan

If you purchase a newly built home, the builder often includes a warranty to cover the home’s appliances and systems. In this case, it’s usually not worth purchasing additional coverage. A home warranty plan also may not be worth it if you’re unable to find a home warranty with claim limits high enough to cover your home’s appliances or other systems. In this case, you may elect to avoid coverage altogether and simply pay for any repairs out of pocket.

The average cost of a home warranty

The average cost of a home warranty can vary greatly depending on your property type, your chosen home warranty provider and the coverage you’re looking for. The average cost for home warranty plans in 2022 ranged between $400 and $800 annually. That breaks down to around $35 to $65 per month.

These premium fees do not include fees you must pay for service on each claim. Your warranty contract will dictate what you must pay in service fees, but expect to pay between $50 and $125 for each service call. Generally, the more you pay in service fees, the lower your premium.

Some home warranty companies allow you to purchase add-ons for items not covered in their packages, such as septic systems and pools. Adding this extra coverage will raise the cost of your home warranty but may save you money down the line. Make sure you consider the various fees included in a home warranty contract to understand your total costs.

Do home sellers pay for a home warranty?

Home sellers are not required to purchase home warranties as a condition of their sales. However, if a seller is trying to make their home more appealing to buyers, they may offer to include a home warranty in the sale. This gives buyers reassurance that anything that breaks soon after closing will be repaired. It also offers sellers some protection against disputes with the buyer that could arise after the sale.

What to look for in a home warranty

Not all home warranties are created equal. If you decide to purchase a home warranty, there are some key factors you should consider.

Major appliances and systems coverage

Not all home warranties offer the same level of coverage, but your home warranty should cover all of the following:

• Electrical systems
• HVAC
• Furnace
• Plumbing systems
• Washers and dryers
• Refrigerators
• Dishwashers

Make sure the warranty you choose includes home warranty coverage for all major appliances and systems in your home.

Additional coverage options

If you want coverage for other major appliances or systems that aren’t included in the warranty company’s core packages, you may need to pay for add-on coverage. These options include:

• Roof leaks
• Rental units
• Guesthouse
• Septic pumps
• Electronics (such as televisions and computers)
• Well pumps
• Spas
• Pools

Low service fees

When you file a claim to have a covered system or appliance in your home repaired, your home warranty company will charge you a service fee. These service fees are separate from the premiums you pay for your coverage and usually range from $50 to $85.

Look for a home warranty company that charges low service fees so you don’t incur a hefty fee every time you request a service call. Make sure you can afford the premium on the warranty, however, as lower service fees often mean higher monthly or yearly premiums.

Home warranty key takeaways

A home warranty may not always be enough to protect yourself against the risks and costs you face as a homeowner. However, it can be a great way to reduce your unexpected repair and replacement expenses and secure the value of your home. Pair a home warranty with home insurance for even more protection.

That said, whether you should purchase a home warranty depends on your risk tolerance and financial situation. If you choose to purchase a home warranty, read the fine print in the contract. The best home warranty companies offer home warranties that contain all the coverage you need at an affordable, transparent price.