Is Buying A Home Warranty Worth It?

November 05, 2018

I spoke with someone the other day that had purchased a 20+ year old home. I could tell by the sound of his voice how excited he was, but he also gave me a laundry list of maintenance and repairs he had to make shortly after the purchase. We started talking about home maintenance plans, often referred to as home warranties. Here’s what we discussed in order to help him decide whether it was worth it.

What to know before you buy a home warranty

What does it cover?

Most companies are flexible and allow you to customize a plan that meets your specific needs and covering what’s important to you. Typically, you can choose to cover appliances (i.e. your refrigerator, washer & dryer, oven, etc.) OR you can choose to cover systems like your air conditioning and heating system, plumbing, and electrical systems. Many will also let you do a combination of the two, covering as many appliances and systems as you prefer.

How much does it cost?

Obviously this is a big part of the decision. Cost typically depends on which company you decide to go with as well as wha’ts covered (and for how long). Compare multiple companies to narrow in on the best home warranty companies. You’ll likely pay a standard monthly fee linked to the type of maintenance plan you choose. Then, you’ll agree on the per service call fee that you’ll be responsible for whenever you have a technician come out to your home. Be sure to factor these costs into your budget. If you opt to be responsible for less money out of pocket when you have a service call, you’ll pay a higher monthly fee for having the plan in place.

How does it work?

Typically, no matter what time of day, or what day of the week, if a covered item breaks, you can contact your provider and they will send a technician out to you. However, it’s important to understand that most warranties require you to use one of their technicians, so if you have an emergency and call someone else, you probably won’t be able to make a claim on your warranty.

The pros and cons of home warranties

Pros:

1) Extends the life of your appliances

2) Extra protection for homes with either the original or older appliances

3) Likely to keep home appliances and systems more energy efficient

4) Peace of mind – you don’t have to do the maintenance on your own, or find a reliable repair person on your own

5) Alleviates some of the need to maintain a larger savings account just for home repairs

Cons:

1) Potentially more costly over the long-term – you might not use the service for years and could have saved those funds for any future repairs/replacements at a lower total cost

2) Service delivery may not be prompt – some may have to wait prolonged periods for someone to come out to fix their problem and it may require multiple visits. This often won’t work if your issue is something pressing like a failed hot water heater when you have guests staying in your home.

3) Confusion around what’s actually covered – be sure you read the fine print and ask questions, so you don’t have any surprises. For example, your furnace warranty may be voided if you don’t have a technician check it annually.

4) More expensive than DIY maintenance – with a little TLC of your own you could save money, you just have to stay on top of it.

Rule of thumb for home repairs and maintenance

Before you purchase a home, be sure to put funds aside for potential repairs and replacement costs. How much you set aside depends on the age of your home – somewhere between 1% – 4% of the purchase price is a good range. If you are already in your home, include those expenses in your budget and designate money each month to get ahead of any needed maintenance.

If you’re in the process of saving and you are concerned you’ll need maintenance before you have enough funds to cover the associated costs, you might consider having the home maintenance plan for a short time-frame, like one or two years.