Are Home Warranties Worth the Cost?

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Home warranties are meant to provide homeowners with financial peace of mind. If a covered appliance or home system acts up due to normal wear and tear, the warranty company will repair or replace it on your behalf. All you have to do is pay a monthly premium to keep your contract active.

A home warranty could be worth the cost for folks who live in older homes or are anticipating repairs in the near future (assuming they're covered). Meanwhile, those who have relatively new home systems or appliances may not benefit from a home warranty. Let's explore how home warranties work and if the cost makes sense for you.

How Do Home Warranties Work?

A home warranty covers home appliances and systems that break down or malfunction with normal use and age. You pay a premium, then notify the warranty company if something goes wrong. If it's covered by your contract, they'll typically dispatch a service technician to your home to assess the situation and report their findings. From there, they'll either repair or replace the unit with no further cost to you—aside from a service fee.

To be clear, a home warranty isn't the same as homeowners insurance, which generally protects against property damage, theft and liability. A home warranty is different in that it's focused on appliances and home systems. Warranties often cover things like:

  • Washers and dryers
  • Dishwashers
  • Refrigerators
  • Water heaters
  • Heating, ventilation and air conditioning systems
  • Plumbing systems

How Much Does a Home Warranty Cost?

A basic home warranty policy costs $400 to $550 per year, according to the National Home Service Contract Association. However, your out-of-pocket costs could be higher or lower, depending on your contract and level of coverage. Your premium will likely skew higher if you opt to expand your policy beyond basic coverage. Many home warranty companies offer add-ons to cover everything from pools to additional refrigerators to electronics and more.

Again, you'll also have to pay a service fee every time your home warranty company sends someone out to assess damage or complete a repair. This generally runs anywhere from $35 to $100 per visit.

How to Decide if You Need a Home Warranty

A home warranty can be a worthwhile investment for homeowners who anticipate having to make repairs in the not-so-distant future. If you've just bought an older home, or have out-of-date home systems or appliances, comparing home warranty quotes could ultimately save you money in the long run. The average cost to install a new air conditioner, for example, is $4,631, according to data from HomeGuide. If things start breaking down within your home, having a warranty to fall back on could reduce financial stress.

But like any contract, it pays to read the fine print. Home warranties usually come with exclusions that may give you pause. Make sure you're clear on what appliances and systems are covered—and under what circumstances. In some cases, the company may decline to cover you if they can trace the problem back to improper maintenance. Things like pest damage, cosmetic defects and improper installation may also leave you high and dry.

It's worth noting that the home warranty company generally has the final word on replacement equipment. Even if your contract says they'll replace a broken appliance with something similar, there's no guarantee it'll meet your expectations. What's more, some installation expenses may not be covered. If, for example, a new water heater requires changing pipes or making structural modifications, that part of the bill could be on you. Again, read your contract carefully.

The Bottom Line

A home warranty may reduce your out-of-pocket costs if certain appliances or home systems give out on you. Of course, they're not for everyone. When deciding if a home warranty is worth it, think about the age and condition of your home. You may find that bumping up your emergency fund is all you need to feel ready for your next unforeseen repair.

When costly expenses pop up, you may need to lean on a personal loan, credit card or home equity loan. This is when having strong credit can be a game-changer. Get off on the right foot by checking your credit report and credit score for free with Experian.