A home warranty is a service contract that covers the cost of repairing or replacing home systems and appliances if they fail due to normal wear and tear. For many homeowners, a home warranty provides peace of mind and allows them to better budget for expensive repairs. However, it may not be of value to everyone. That’s why we asked experts to explain when a home warranty is worth it, and when you might consider other options.
“In my more than 33 years of experience as a Florida real estate broker, I can say 90 percent of the time they (home warranties) are worth it. Even if you don’t need them for a year, the peace of mind of knowing you won’t be billed for unexpected repairs is worth it in itself,” says Kristen D. Conti, broker and co-owner of Peacock Premier Properties in Inglewood, Florida.
When is a home warranty worth it?
Home warranties are most valuable when there is a high risk of uncertainty or expensive repairs. “A home warranty makes the most sense for first-time home buyers, owners of older homes, or those who don’t want to be hit with surprise repair costs during the first year of ownership,” says Austin Glanzer, an experienced home buyer and co-owner of 717 Home Buyers in Lancaster, Pennsylvania.
Whether you know your home’s history or not, it’s not uncommon for unexpected home repairs to occur. From plumbing issues that were missed during inspections to aging appliances that you thought would last another year, problems can easily arise when you can’t afford a big new expense. A home warranty can help cover those costs.
If you don’t have an emergency fund saved, expensive home repairs can turn into a one-way ticket to a credit card. “When a $5,000 HVAC breakdown puts a huge dent in your budget, a warranty is a good thing,” adds Glanzer. The cost of this repair will likely be covered by your home warranty, and it’s worth paying the premium each month.
When is a home warranty not useful?
After all, a home warranty is only worth it if you use it. If your annual Premium Plus service fee doesn’t break even for at least some common fixes, or if your plan’s limitations make it difficult to receive quality service, you may want to budget for repairs yourself. Here are some examples when a home warranty isn’t worth it to you.
If you rarely file claims, or if your regular repair costs are lower than your plan’s service charge (the deductible you pay each time you submit a claim), it may not be worth it.
If your coverage limits are too low, you could end up paying the difference for expensive repairs, especially for HVAC, plumbing, and electrical issues. Similarly, broad or vague exclusions (such as pre-existing conditions, improper installation, lack of maintenance, code upgrades, refrigerant or disposal fees, etc.) can turn legitimate issues into claim denials. All of this can make a home warranty worthless for many homeowners.
Contractor networks can also be a source of frustration. “The downside is that many home warranties only allow certain contractors to be used in the event of a defect covered by the warranty, and that’s often where the problem lies,” says Brad Dewin of We Buy MD Homes. “Service professionals authorized by certain home warranties often don’t have proper ratings or reviews. In some cases, they don’t even have a license or actually have no reviews online. These are red flags,” he added.
You may refrain from purchasing a home warranty if any of the following apply to you:
- Have a sufficient emergency savings fund for unexpected expenses.
- The system and appliances are new.
- Your system and appliances are covered by the manufacturer’s warranty.
How to make your home warranty worthwhile
“The warranty pays for itself in one major repair,” says Glanzer. You should file a claim as soon as you notice a problem, maintain your home systems and appliances, and above all, remember to take advantage of your warranty. “But often people forget they have a warranty or there aren’t any major problems with their home,” he added.
To make your home warranty worthwhile, you should:
- Read the contract line by line. Know what is covered, what is excluded (pre-existing conditions, improper installation, etc.), coverage limits, and waiting periods.
- Choose the plan that best suits your home. Align scope to actual systems and appliances. You can skip add-ons that you don’t use. If you’re installing a new HVAC system, you likely won’t need that coverage and can go for a less expensive appliance-only plan.
- Track rates and limits. Compare service call fees, per-claim limits, and total annual limits to repair and replacement costs in your area. Make sure your limits are sufficient to cover the most common repairs.
- Please submit your claim promptly. Report any problems as soon as you notice them to avoid negative consequences related to neglect or poor maintenance.
- Document everything. Keep photos, serial numbers, maintenance receipts, technician notes, etc. as these will only strengthen your claim or dispute.
Things to consider when researching home warranty plans
A home warranty does not promise to repair or replace all failed appliances or systems, and is best used as a budgeting tool. “It’s best to approach this service with realistic expectations rather than promises of savings,” says Sean Malloy, founder and managing partner of the Malloy Law Firm, who regularly handles real estate litigation. While you can rely on your home warranty for many repairs, it’s not designed to cover everything.
“The key is to read the fine print, understand what the warranty covers, and look for any ambiguous terms and conditions,” says Dwin. In addition, Malloy recommends understanding how well your warranty is covered and the main reasons your claim is denied by “reading it line by line and asking how often your claims are denied and why.”
Dwin and Malloy agree on the things homeowners should consider when looking for the right home warranty plan.
- Scrutinize your contractor network. Check Google, Yelp, Trustpilot, and licensing databases to see which technicians are used for warranties. A lack of reviews, low ratings, or lack of licenses are red flags.
- Make sure you can (or don’t) choose your own pros. Ask if out-of-network contractors are allowed and under what conditions (prior authorization, reimbursement limits, etc.).
- Clarify ambiguous terms. Ask how the plan interprets language like “inadequate maintenance,” “pre-existing conditions,” or “normal wear and tear,” and get examples in writing (i.e., via email).
- Review coverage limitations. Be aware of per-claim and annual limits, parts/labor limits, and sub-limits for high-cost systems.
- Ask about the rejection rate and why. Request data and examples of common rejections (lack of maintenance, code issues, etc.) to understand the pitfalls.
- Set realistic expectations. Treat the warranty as a budgeting tool, not a promise to repair or replace all items not covered by service.
- Understand the billing process. You need to know how the file is created, typical response times, re-service periods for failed repairs, and required documentation such as photos and maintenance records.
- Compare the total cost and expected usage. Balance premiums and service fees with the age and condition of your systems and appliances to make sure the price of your plan meets your home’s needs.
Where can I buy a home warranty
The USA TODAY team uses an in-house methodology to research and rank the most popular home warranty companies in the industry. After comparing costs, coverage, exclusions, and coverage limits, we found American Home Shield and Select HomeWarranty to be the best in the industry.
FAQ
What are the disadvantages of a home warranty?
There are certain things that home warranties don’t cover, such as pre-existing conditions, cosmetic damage, and damage to the home’s structure, such as the foundation. There are also coverage limitations, so your plan may not cover the full cost of replacing your system or appliance.
What are the home warranty red flags?
A home warranty that offers to cover everything but has an extensive list of exclusions is a red flag. Low customer reviews are also a red flag that your customers may not be satisfied with your service.
Will a housing deposit be paid?
Yes, your home warranty will pay if your covered home systems or appliances fail due to normal wear and tear.
