Is a Home Warranty Worth the Money? | Personal Finance

Your home may be your biggest investment, but you’ll need more than homeowners insurance to protect it. While a homeowners policy will cover damage from incidents like fires and falling trees, it isn’t going to pay for a leaking roof or a furnace failure. Fortunately, there is another type of plan that will cover these expenses.

“Home warranties provide budget protection for homeowners (and) help with the high cost of systems and appliances that fail,” explains Alexia Bertsatos, a real estate agent with EXP Realty in Arizona’s East Valley.

However, warranties can cost hundreds of dollars, and many have exclusions. Before purchasing one, keep reading to learn more about how these plans work and whether they are worth the money.

A home warranty will pay for the repair or replacement of covered appliances and systems. Some, such as those purchased at the time of a home sale, provide coverage for a specific period of time, such as one year. Other plans are sold on a subscription model and charge a monthly fee to provide ongoing protection.

When a repair is needed, homeowners typically must call the warranty company to arrange for a service call. There may be a fee associated with these visits as well.

Warranties generally cover major systems such as heating, plumbing and roofing, but coverage details can vary significantly from plan to plan.

“Most home warranty companies offer customers the opportunity to choose the plan that best suits their own unique home,” says Raj Midha, senior vice president and general manager at American Home Shield, a home warranty company. He notes that American Home Shield has customizable plans that can cover 23 home appliances and systems including pools, roof leaks and electronic devices.

With so many choices, homeowners need to be diligent about understanding what is covered – and excluded – by any plan they purchase. “For example, although HVAC systems are included, a lot of warranty companies don’t cover refrigerant costs,” Bertsatos says.

Home warranties are also evolving, according to Glenn Orgin, founder and CEO of Richr, a real estate sales platform. He points to an inspection protection plan offered by the insurance company Hippo, which offers coverage when a home inspection is completed through one of the company’s partners. Then the home is covered for one year and up to $100,000 against defects that may be missed by the inspector.

“It’s very much a game changer,” Orgin says. Traditional home warranties don’t usually cover structural defects such as foundation, grading or ventilation problems, but Hippo’s Inspection Protection program will.

Just as warranty coverage can vary so too can the cost. Basic home warranty coverage can cost as low as $300 to $400 per year, but prices can reach into the thousands.

“I’ve seen them go as high as $3,000,” Orgin says. “The higher the price you’re willing to pay, the higher the coverage.”

Prices can vary based on several factors:

“With American Home Shield, you typically choose from three (service call) options that help you manage your budget and out-of-pocket expenses,” Midha says. Depending on the option selected, service calls could cost homeowners $75, $100 or $125.

To make warranties more affordable, many companies allow customers to pay monthly. Prices can begin at $40 per month and can run as much as $75 per month or more.

Newly constructed homes often come with their own guarantees, but a home warranty can be a smart purchase for an existing home.

“I always encourage my buyers to get a warranty,” Bertsatos says.

While inflation is rising, Midha says homeowners can lock in home warranty pricing by enrolling in an annual plan. An added benefit of a warranty is the ability to connect with trusted contractors.

“If you’re a new homeowner, you probably don’t have a go-to repair person,” Midha says. “Home warranties give you access to a network of licensed and vetted local pros, taking the hassle out of the process.”

Home warranties are usually purchased by buyers, but they can be beneficial for sellers as well. Having one can encourage a quick sale, and it can provide peace of mind that any future problems won’t come back to haunt the former homeowner. “That allows the seller to sleep at night,” Orgin says.

Not everyone needs a home warranty, though. Newly constructed homes may be covered by a builder’s guarantee, and it may make financial sense to forego a warranty on a newer existing home if the inspection doesn’t turn up anything worrisome.

For older homes, there are some cases when it may be better to save money in an emergency fund rather than buy a home warranty. For instance, those who prefer to do their own repairs or select their own repairperson may want to skip the expense of a warranty. What’s more, some policies won’t pay for expenses if an appliance or system hasn’t been properly maintained. If an inspector indicates a system has been neglected, there may be no point in buying a warranty that isn’t likely to cover repair costs.

You can purchase a home warranty when buying a house or any time afterward. There are generally no inspection requirements for most warranty programs.

Regardless of when you purchase the warranty, do your homework to ensure you are contracting with a credible company. Legitimate companies should be licensed or certified by the state, Orgin says. And Bertsatos recommends checking online review sources such as Trustpilot and the Better Business Bureau. Most real estate agents can also provide recommendations for tried-and-true companies.

Before signing up, make sure you understand the following:

Many companies require customers to use their service providers and won’t reimburse for services scheduled with third parties. Also, pay attention to response times. While you may be able to live without a dishwasher for a few days, if you live in Arizona and your air conditioner dies, for example, you don’t want to be waiting long for a repairperson to arrive.