Many homes for sale come with a home warranty as a way to provide peace of mind to the buyer since it will cover the major components in the home for the first year. But once the first year is over, and it is time for you to renew the warranty, you will need to decide if it is worth it. Even if you’ve never had a warranty before, you can purchase one on your own, but do you need to?

Breakdown of a Home Warranty

Many people confuse a home warranty with homeowners insurance. They are two very different kinds of coverage. Homeowners insurance is mandated if you have a mortgage and highly suggested even if you don’t. It covers disasters such as fire or hail and will help you replace the structure of your home as well as your personal property.

A home warranty, on the other hand, does not cover perils. Instead, it covers certain components of your house such as electrical systems, plumbing, heating and air, and major appliances. If something goes wrong on a covered component, your home warranty company provides for repair or replacement. Each warranty company has their own standard coverage as well as additional items you can cover for an additional cost.

Warranty costs vary from about $300 to $600 a year and can be paid up front or in monthly installments. The cost depends on the company, the property type, and how many additions you choose to purchase. It doesn’t matter how old your house is or its square footage, but separate structures are typically not covered without additional expense.

Keep in mind, however, that the premium isn’t the only fee you will be required to pay. Whenever you need service to a covered system, you will also have to pay a service call fee. This ranges from $60 to $100 per service call depending upon the company you choose. Keep in mind that this fee is per service provider, so if you have an issue that requires both an electrician and a HVAC technician, you will have to pay the service fee for each contractor.

3 Benefits to Buying a Home Warranty

There are many benefits to having a home warranty. Here are three most important considerations when deciding if a home warranty is right for you.

  1. Dealing with contractors is easy. If you need a repair, you just contact your warranty company, and they do the rest. They connect with the contractor who calls you to set up a time for the repair. All you need to do is pay the service fee. As long as the item to be repaired is covered by your warranty, the service fee is the only out-of-pocket money you will need to pay to get your covered item working again.
  2. Protects against unforeseen expenses. For many people, having enough money in an emergency fund is difficult to maintain. Ask yourself these kinds of questions: Can I pay for a new compressor for my air conditioner if it died in the middle of the summer? If my refrigerator stopped cooling today, could I buy a new one? Do I have the funds to replace my water heater? If the answers are no, then a warranty might be right for you. Paying a yearly premium and knowing expensive components are covered can provide a buffer between what you have saved and what you’ll need to spend on repairs.
  3. They are great if you are not handy. Some people have the right skills to fix their dishwasher or garbage disposal. However, others are not comfortable with such repairs. If you are not handy, then having a warranty can help you maintain your property and keep expenses limited.

3 Drawbacks to Buying a Home Warranty

Although buying a home warranty does have value for some people, not everyone wants or needs one. Here are three issues that people have with buying a home warranty.

  1. The coverage isn’t always what you would like it to be.
    • Many items are not covered: Although your refrigerator is covered, the water and ice dispenser system within the refrigerator may not be.
    • Some components have a cap on the amount the warranty will cover: Although the warranty will pay for freon, it will only pay a certain amount per pound, regardless of what the contractor charges for Freon.
    • Even covered items are not covered if they feel that you haven’t properly maintained them: Many warranty companies will deny a claim when they believe the reason for the problem was lack of maintenance. If the claim is denied, you still have to pay the service fee and will have to pay your own repair costs.
  2. You don’t use it in a given year and feel that you wasted your premium. If you have a newer home, you may feel that you are wasting money on a service you never use. Instead, you could be putting this money into an emergency fund.
  3. No freedom to choose.
    • You don’t pick your contractor. The warranty company has contractor partners and determines who will come to your home. You have no input.
    • You don’t get to choose whether to repair or replace. For instance, your refrigerator may be 12 years old, and you feel that a new one would be more energy efficient. The warranty company, on the other hand, may wish to simply fix your old refrigerator.
    • No choice on replacements: Even if they do replace your component, you have little say in the model or brand they choose. Your warranty company will choose something that is similar to what you had before.

The Bottom Line

A home warranty can be beneficial to some homeowners but not to others. It is very dependent upon your personal situation. Be sure to read your contract before signing and paying so that you know exactly what you are getting. If you choose to purchase a policy, be sure to compare policies with different warranty companies that have a long-term history in your area.

If you are considering a home warranty, I would be happy to discuss the pros and cons more fully with you, as well as recommend companies that service our area.