Is a Home Warranty Worth It? An Honest Look

What a home warranty is (and isn't)

A home warranty is a service contract. You pay a yearly fee. When a covered appliance or system breaks from normal wear, you pay a service fee and the company sends someone to fix or replace it.

It isn't home insurance.

• Home insurance pays for sudden damage, like a fire, a storm, or a burst pipe.
• A home warranty pays for things that wear out, like a dishwasher or a water heater.

What it costs

Home warranty plans cost about $222 to $1,877 a year. Add-ons for things like pools or septic systems add about $180 to $250 a year. On top of that, you pay a service fee each time someone comes out.

A simple break-even check

Here's a made-up example to show the math. Say a plan costs $600 a year with a $100 service fee.

• No repairs this year: you're out $600.
• One $400 repair: you pay $600 + $100 = $700, more than the $400 repair.
• One $2,000 repair that's covered: you pay $700 instead of $2,000.

A warranty tends to pay off in years with a big covered repair, if the claim isn't denied and the cap covers it. In quiet years, it costs you money.

When a home warranty can make sense

• Your appliances, AC, furnace, or water heater are older and out of their original warranty.
• A surprise $1,000 to $3,000 repair would be hard to pay.
• You just bought a home and don't know the history of its systems. Sellers sometimes pay for the first year.
• You'd rather not find repair people yourself.

When it probably doesn't

• Your appliances and systems are new and still under the maker's warranty.
• You have an emergency fund that can cover repairs.
• You prefer to pick your own repair people.

The fine print to read before you buy

1. Caps on each repair. Many plans pay only up to a set amount per item or per year. A $500 cap won't go far on a new AC system. Look for the cap on your most expensive systems.

2. What gets claims denied. These are the big ones: - Pre-existing conditions: problems the company says started before your coverage - Lack of maintenance: if you can't show the system was cared for - Code upgrades: some plans won't pay for work needed to meet today's building codes

3. The service fee. Plans with a lower yearly price often have a higher fee per visit. Do the math for a year with three or four repairs.

4. Who picks the repair person. Most plans send their own. You may wait longer in busy seasons.

5. Replace vs. repair. Some plans will pay what they say a new unit costs, not what you'd actually pay. Ask how they decide.

The FTC also suggests checking the company's reputation. Search its name with "complaints," and check the cancellation terms before you sign.

Tips if you buy one

• Keep maintenance records. Save receipts for AC tune-ups, furnace service, and water heater flushes. They help you fight a "lack of maintenance" denial.
• Take photos of your systems and their labels when your coverage starts.
• Read the whole contract, not just the brochure.
• Know how to cancel. Check whether you'll get a refund for unused months.

Another option: save it yourself

Put the money you'd spend on a warranty into a separate "home repair" savings account each month. If nothing breaks, you keep it. For many people with some savings, this works as well or better.

Related pages

Protect and repair your home: Foundation repair · Water damage restoration · Home security · Home warranty · Basement waterproofing · Mold remediation · Radon testing and mitigation · Pest control · Home inspection · Chimney repair · All home projects