A Home Warranty on Your U.S. Property: Is it Worth it?

Home warranties may offer peace of mind and a level of financial security against the cost of system or appliance breakdowns. To see if purchasing a home warranty is right for you, it’s important to know what these warranties cover and how they work.

What is a home warranty?

A home warranty is a contract that covers the cost of repair — or replacement — of your home’s systems and appliances. While the items that are covered vary by company, they typically include:

• Appliances such as dishwashers, ovens, refrigerators, washers and dryers

• Furnace, electrical, HVAC and plumbing systems

• Septic systems or wells

• Pool and spa equipment

• Roof leaks

When something covered by a home warranty breaks down, you simply call the warranty company. If the repair or replacement is covered, the company completes the work for a small service fee.

What isn’t a home warranty?

A home warranty is not the same as homeowners insurance. A homeowners insurance policy typically covers a home’s structure (as well as the things attached to it and housed inside) that may be damaged due to fire, storms, theft, and certain types of water damage. A home warranty, meanwhile, covers your appliances and systems based on typical wear and tear.

Benefits of a home warranty

Home warranties often provide peace of mind, give you the reassurance that if one of your home’s major systems breaks down, you have someone to call to come and fix it. A home warranty simplifies home ownership and may take some of the financial worry out of the equation.

In particular, home warranties may be worth considering if you:

• Are not handy, and DIY fixes make you cringe

• Are new to home ownership and aren’t familiar with how systems work

• Don’t want to deal with financial surprises / are on a fairly fixed budget

• Have bought a resale home and your appliances / systems are aging

• Don’t have a network of contractors (or the idea of tracking down repair people is unappealing to you)

• Don’t live in the property and don’t have a property manager to deal with problems as they arise

Drawbacks of a home warranty

While a home warranty offers a safety net, it’s not perfect for everyone. Some of the downsides may include:

• Not covering everything in your home (e.g., fireplaces and window air conditioning units are often not included in contracts)

• Warranties only covering items that are “properly maintained.” This claim is open to interpretation and the homeowner and warranty company may disagree on the point

• If your systems work perfectly fine, you would have paid the cost of the warranty without requiring any services

• If an item needs to be replaced, you may not have a say in the make or model

If you decide a home warranty is right for you …

If you feel that a home warranty is a good choice for you, there are a few things to keep in mind so that you enter your contract with confidence.

• Read over any warranty contract very carefully before deciding to purchase

• Compare two or three warranties to see which one offers the best coverage for your situation

• Read reviews on the Better Business Bureau website. These are objective and based on the size of the business, the number of complaints and how well the business responds to complaints (including speed and effort to resolve them).

• If you are purchasing a new home, check first if your warranty is free for the first year. If you’re buying a resale home, see if a home warranty can be negotiated into the purchasing agreement

If, on the other hand, you decide that a home warranty isn’t worth it for you, consider boosting your emergency fund. This move will help to cover unexpected repairs or issues without having to scramble for funds, if or when something goes wrong.

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