If you’re thinking of purchasing a home, it’s almost a certainty that at some point, someone will mention buying a home warranty plan. Home warranty companies often present them as a failsafe way to keep you from having to pay for expensive repairs out-of-pocket, but do they really provide the protection you need? Let’s take a look to see if a home warranty plan is really worth the cost.
What is a Home Warranty Plan?
A home warranty is a type of service plan that covers repairs and replacements on home systems and appliances. Unlike your homeowner’s insurance, which covers catastrophic events like fire and weather-related damage, home warranties cover basic repairs when a home system or appliance breaks down.
As an example, it might pay for a new water heater if the heating element goes out, or for the replacement of a compressor on a heating and air conditioning system if it no longer works. Home warranty plans also pay for repairs on things like built-in microwaves, washers and dryers, and dishwashers.
Home warranties usually stay in effect for one year and are renewable every 12 months.
How Much Does a Home Warranty Cost?
How much a home warranty costs depends a lot on what type of warranty plan you purchase and what items you want the plan to cover. A home warranty company usually offers a selection of plans, including an appliance plan, a major home systems plan, and a combination plan that covers both.
The average price for a home warranty plan is generally around $350 to $600 per year. If there are additional items you want to cover, such as an in-ground pool or a septic tank, expect to pay an additional yearly amount of anywhere from $100 to $500 per item.
In addition to the yearly cost of a home warranty plan, home warranty companies also charge an amount each time a service technician is called out to your home for a repair. This charge is known as a trade service fee or service call fee. Depending on the terms of your home warranty plan, you should expect to pay a trade service fee of about $75 to $125 for each visit to your home for a repair. This fee is paid when the service technician arrives and is required whether the repair is made or not.
The Advantages of Having a Home Warranty
Home warranties are designed to protect a homeowner if a major component in the house breaks down. Home warranty companies market their plans as a way for homeowners to have peace of mind when costly and unforeseen repairs are needed. In a way, this is true. If you don’t have an emergency fund that can cover an expensive repair, having a home warranty plan you can pay for monthly that will cover a leak under the sink, or a broken washer and dryer makes sense.
Home warranty plans are also helpful if you aren’t handy with repairs or don’t know who to call when something goes wrong. They also make sense if you have appliances with lots of bells and whistles that are expensive to fix or replace.
One of the more popular reasons to purchase a home warranty is for when you are buying a new home. Since a home buyer has limited information about the house they are purchasing, it can provide a sense of security that if something goes wrong, they don’t immediately have to worry about paying for costly repairs as soon as they move in.
As a home seller, offering to purchase a potential homebuyer a warranty plan when they close on your home can work as a powerful negotiating tool.
The Downside of Home Warranty Plans
Home warranty plans can give you peace of mind, but they are not without their problems. One of the biggest problems with home warranties is that the plans tend to have a lot of exclusions. This often frustrates homeowners who do not understand why a home warranty company refuses to pay for their repairs.
As an example, plans may exclude furnaces that are over 10 years old or refuse to pay for a repair if a previous repair was made without using the proper-sized fittings. A homeowner may also think that their plan covers an outdoor pipe leak, but plans often exclude plumbing repairs that occur on the exterior of the home.
While reputable companies acknowledge these exclusions upfront in their contracts, less reputable companies may make the contract language vague and only inform you of your lack of coverage once you make a claim.
Another downside to home warranty plans is that you have no say in who makes the repairs or how the repairs are made. In almost all cases, the home warranty company chooses the service technician for you and it is at the home warranty company's discretion whether to make a repair or offer you a replacement.
One other thing to consider is that you could go for many years without ever needing to use the coverage, yet each year, you are paying hundreds of dollars for the plan. It is fair to reason that, should no repairs occur for a period of years, the amount you spent for coverage could have been saved for an emergency fund and then used to pay for a repair when the day came -- without the need to involve a home warranty company at all.
Provides peace of mind
Don’t have to worry about finding someone to make the repairs
Can cover expensive repairs if you don’t have an emergency fund
Helpful negotiating tool when trying to sell a home
Plan exclusions could mean you have no coverage for a needed repair
Service technician chosen by the home warranty company
Repair or replace decision made by home warranty company
You could pay for a home warranty plan for years without ever using it
There are some advantages to having a home warranty plan, not least that it can offer peace of mind. However, there are also some pitfalls you should consider before you purchase one and, if no expensive or frequent repairs are required to your systems and appliances, having a home warranty plan may not have been worth the cost.
When considering a plan, make sure to first carefully read through the terms and conditions to ensure you fully understand exactly what you are paying for and what your plan covers.
If you do think having a home warranty plan will be worth the cost, do your research in terms of the company you select. While there are reputable companies, there are also some who don’t deliver on what they promise or make the contract so confusing you won’t know what kind of coverage you have until they refuse to pay for it.