Are Home Warranties Worth the Money?

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If you’ve bought or sold a home recently, the chances are excellent you’ve purchased or received a home warranty.

Consumers frequently expect more than these plans deliver and end up frustrated, Money Talks News founder Stacy Johnson says. He explains the pros, cons, ifs and buts of home warranties in the video below. After you’ve seen it, read on to learn more.

Not insurance

Home warranties aren’t insurance policies. They’re service contracts. Like a service contract that covers repairs to your computer, a home warranty is a company’s agreement to pay for fixing — and, if necessary, replacing — specified home components.

A home insurance policy, in comparison, covers losses if your home and its contents are damaged or lost to theft, fire or other causes.

Cost

A basic home warranty costs about $350 to $500 a year or more. It typically covers kitchen appliances, plumbing, water heater, furnace, sump pump, whirlpool tub, and ceiling and exhaust fans, Angie’s List says.

“Enhanced” plans, purchased separately for another $150 to $300 and up, provide added coverage for such things as a washer and dryer, air conditioning, refrigerator and garage door opener, according to Realtor.com. Still other contracts may be added to cover other items.

You may be covered already

If someone gives you a home warranty, accept it — at least while it’s free. But understand that, even with someone else paying the premiums, you’ll need to pay a service fee (typically $50 or $75) each time you need a repair.

Before buying a home warranty, learn what coverage you may already have. For example, if you’re buying a newly built home:

  • The home appliances and systems typically have one-year warranties.
  • Most states require builders to warranty the home’s structural elements for up to 10 years.

Also, when you buy new furnishings and appliances, use a credit card that extends the product’s warranty. That can add as much as an extra year.

Is a home warranty right for you?

Sellers often buy a year’s coverage as an incentive to home shoppers. Owners of new homes frequently pay the premiums after their free year expires.

Real estate agents give home warranties to clients as a thank-you gift for purchasing a home. Some buyers of older homes find that a warranty gives them confidence.

Other homeowners decide they’re better off setting aside savings to cover home repairs and replacements.

One way to think about your needs: Compare the age of each covered item with its average life span (use these charts at the National Association of Certified Home Inspectors and This Old House).

With expensive components near or past their life expectancy, a home warranty might be a good idea. Components that have pre-existing problems, however, typically are excluded.

Pros

“It’s especially a good idea to obtain a home warranty if you’re a first-time homebuyer with no experience maintaining a home,” About.com says.

With previously owned homes, buyers inherit used appliances and home systems with wear and tear. New Jersey real estate agent Lorraine Labonne-Storch told HSH that, a few days after closing a home purchase for herself, the boiler at her new home caught fire. It cost her $12,000 to replace.

It would have been terrific to have had a home warranty, she said. She’d had the option when she bought the house but declined it.

Cons

Home warranties top the list of complaints received by Angie’s List. One reason, Angie’s List says, is the difference between customers’ expectations and what their plans actually deliver. Homeowners also complain about the quality of service from warranty companies.

Before buying a home warranty, read the contract and understand exactly what it does and does not cover. You don’t want your claim rejected because the fine print said, for example, that:

  • Refrigerators aren’t covered.
  • You didn’t maintain the appliance.
  • The appliance was installed incorrectly.
  • The appliance had too much wear and tear.

If you haven’t read carefully, be prepared for surprises. You can’t:

  • Assume your policy will replace a faulty component. The warranty company may insist on repairing it.
  • Assume you can call your favorite service provider. Home warranties usually require you to use a contracted servicer.
  • Assume the warranty will pay the entire cost. Although she would have been happy to have it, Labonne-Storch said the home warranty she declined would have only paid up to $1,600 to repair or replace the $12,000 boiler.

Find out:

  • What’s covered. Learn which items are covered and what the warranty provides.
  • Exclusions and limitations. A refrigerator may be covered but the ice maker excluded, for instance. Claims may be rejected because of pre-existing problems or insufficient maintenance.
  • The exit. Can you cancel? Most contracts allow a 30-day “free look” that allows a buyer to cancel within 30 days and get a full refund, says the Service Contract Industry Council.
  • The service provider. Who will do the repair work?

The Better Business Bureau has more on shopping for home warranties.

Vet the company

Research a company using these sources:

  • Better Business Bureau. Type in your city’s name. On the next page type the company’s name. Or type “home warranty.” You’ll see if a company is BBB “accredited” (a company agrees to resolve complaints with the BBB and pays an accreditation fee of $400 to several thousand dollars). See company ratings, if any, and a summary of complaints to the BBB.
  • Your state attorney general’s office. (Find yours from the National Association of Attorneys General.)
  • Your state insurance commissioner. (Locate yours with this National Association of Insurance Commissioners’ map.) Although home warranties aren’t insurance policies, 32 states require companies offering them to register or be licensed by the state’s department of insurance.

Have you made a claim on a home warranty plan? How did it go? Tell us in the comments below or post a comment on Money Talks News’ Facebook page.

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Comments & discussion

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  • Senya

    A home warranty may not be an insurance policy, but my warranty provider sure leaped to attention when I filed a complaint with the state Insurance Commission. They had refused to replace a gas heater, which they had “repaired” five times, each instance taking about a week to get a repair company to call me, and then to find a mutually workable appointment time — so that essentially I was without heat for half the winter. I asked the warranty company to replace the heater, but they relied on a provision in the contract that requires a repair technician to “certify” that an appliance is “not repairable” before the warranty provider will replace it. Of course, I’d read that provision, but I didn’t really understand it in practice (which is the case with so many aspects of insurance policies). I soon realized that NO repairman would want to certify that an appliance was “not repairable”, on pain of losing his relationship with the warranty company. I went round and round with the company, while they stonewalled, until I finally complained to the Insurance Commission. Two weeks later I got a letter from the warranty provider, offering me the price of the heater and the cost of labor to replace it. YES!!

    That said, I’m keeping the warranty current. It truly does have its limitations, and if I could get better coverage I would certainly change companies, but for about $400 a year and a small deductible, plus just a little bit of a fight, it has already covered repair of the gas heater, a garage door, a really crappy old stove, and an exterminator to get rid of ants. In my case it’s been worthwhile.

  • transmitterguy

    DO NOT BUY A EXTENDED WARRANTY ON ANYTHING. IF IT BREAKS THROW IT AWAY AND BUY A NEW ONE! Everything has a 1 year or more warranty anyway. If your thing is 2 years old and It breaks, you got the life out of it Throw it away or sell it as broken on the local bargain sheet. My buddy fixes washers and dryers and fridges, He and other repair guys look at these bargain papers every day looking for a appliance they can fix and make money from, plus they will pick it up free put a price of $100 dollars on it and they can still make money. Take the $250 you would have paid to fix it and the $100 from selling it and buy a new one. Remember appliances are only made to last 5 years nowadays, not 15 years like in the 70’s. Don’t fix and old laptop or Ipad thats over 2 1/2 years, BECAUSE IT’S OLD TECHNOLOGY. Big screen tv 2 or 3 years old and doesn’t work? Sell it broken and buy a new one with better technology, you will be happier.

  • Terri Lane

    As the president of a home warranty company, I agree with this article. The most important thing you can do as a consumer is to read the home warranty contract! The biggest problem we run in to is with the folks who have not read their contract. If you read the contract, you will know what the terms and limitations of the warranty are and will be better able to make proper use of your home warranty. We save our clients a ton of money each year and we are gratified that many of our first time clients renew their home warranty year after year. A home warranty is a great investment whether you are in a real estate transaction, or just getting coverage for the home in which you live. Do a bit of research and you will find that like in any industry, there are good companies and not so good. Always check with your local BBB, as they are a great resource to find out about a company and how they deal with consumer complaints. Signed, Terri Lane, President

  • Terrance Pitts

    I JUST PURCHASED MY HOME LAST MONTH AND I HAVE BEEN HAVING TROUBLE WITH MY A/C FROM DAY ONE. TWO SERVICE CALLS AND $490 LATER MY HOME WARRANTY REPLIED THAT THEY WILL NOT HONOR THEIR CONTRACT AND REPAIR MY A/C. I WOULD NOT RECOMMEND TO ANYONE TO PURCHASE A HOME WARRANTY SEEING THAT IT IS A TOTAL WASTE OF MONEY AND THE WARRANTY COMPANIES ARE ONLY SEARCHING FOR WAYS NOT TO PAY A CLAIM.