Home Warranties: When They’re Useful and When They’re Not
Like many purchases, there are both pros and cons to home warranties. The more you know, the better equipped you’ll be to decide whether warranties are right for you or if you’ll be better off maintaining and protecting your home using alternative approaches.
Below, we dive into this unique type of protection: What are home warranties? When are they useful? Are they worth the cost? Read on to learn the answers to these questions and more.
What Is a Home Warranty?
A home warranty covers the repair cost of common household items and appliances, such as heating and cooling systems, hot water systems, refrigerators, dishwashers, and dryers. In cases where repairs would be insufficient, a home warranty can even fully replace the broken item in question. Warranties are usually annual service contracts that help mitigate the cost of home repairs and breakdowns for covered items.
A Home Warranty vs. Homeowners Insurance
Insurance provides protection from emergencies and outside forces, such as weather incidents, fires, vandalism, theft, and injuries. Warranties, on the other hand, cover specific systems and appliances that stop working throughout the longevity of your homeownership.
For example, a worn-out hot water system could be covered by a warranty but not an insurance policy, while a pipe that blows due to extreme cold weather would only be covered by insurance. Another major difference is that home warranties expire, while most insurance policies are indefinitely renewable.
What Do Home Warranties Cover?
Home warranties cover the repair and replacement cost of particular working parts of your home, often specific appliances and systems. Examples include:
- Electrical systems
- Plumbing systems
- Heating and cooling (HVAC) systems
- Hot water systems
- Ceiling fans
- Sump pumps
- Washers and dryers
- Garbage disposals
Newly built homes are eligible for structural and home warranties up to 10 years after construction.
How Much Do Home Warranties Cost?
Home warranties tend to be rather affordable for homeowners, unlike many insurance plans. The average monthly cost for a home warranty is between $25 and $100, though this varies based on the coverage plan and any additional items being covered. Basic plans usually cost up to $400 annually, while premium plans tend to cap at $600 before add-ons.
Why Do People Buy Them?
Home warranties are very popular among new homeowners trying to save on unexpected homeownership costs, like replacements and repairs. In most cases, these warranty plans are offered by real estate professionals to prepare buyers for unanticipated expenses.
Many people also use home warranties for peace of mind. It’s often easier to pass a problem off to a warranty provider than find a suitable repair service yourself.
How Do Home Warranties Message/Present Themselves?
Home warranties are often marketed and phrased in catchy ways that promise to save you money and help you “keep your home up and running” with “coverage for the real world.” They often use home breakdown statistics to convince you that you’ll inevitably need something fixed, and therefore, home warranties are your only affordable solution. A problem with these similar presentation strategies is that it can be difficult to determine which home warranties, if any, are actually the right home maintenance solutions for you.
How Does a Home Warranty Work?
To begin a home warranty claim, first, call the warranty company to report the issue. From here, the warranty provider will arrange a time for a contractor to assess the problem, determine if it is covered by the warranty, communicate the best solution with all parties, and issue the repair or replacement. In situations where the problem is not covered by the warranty company, you will be responsible for the contractor’s service fees.
Messaging and Criticism Against Home Warranty Plans
There are criticisms against home warranty plans. Many new appliances like dishwashers already have manufacturer’s warranties that make home warranty coverage extraneous, and many of the fixes home warranty plans are willing to cover are easy, otherwise affordable repairs.
One of the largest criticisms against home warranty plans is their excessive use of exclusions, claim caps, deductibles, and service fees. Examples of exclusions include:
- Improper maintenance
- Lack of proof of maintenance
- Expensive repairs
- Problems you personally caused
- Problems identified during a pre-purchase inspection
- Ended coverage
- Wear and tear
- Problems caused by natural disasters
Other criticisms include warranty companies sending unsatisfactory service contractors, supplying inequitable replacements, misrepresenting “improper maintenance” claims, and including arbitration clauses in contracts so you cannot take legal action.
Is a Home Warranty Worth It?
Home warranties are typically not worth the additional costs for homeowners, with few exceptions. Despite costing hundreds of dollars per year, most home warranty plans only cover minimal repairs, and some leave you still paying additional service fees. Other warranties may hire untrustworthy contractors or take extraneous time for a one-day repair. More affordable home warranty alternatives include using manufacturer’s warranties, arranging for regular preventative maintenance service, building an emergency fund, or making the repairs yourself.
Homeowners currently looking to sell their house should consider attaching warranty plans to improve the home’s market value. However, while new homeowners may benefit from these home warranty plans, the warranties should not be renewed once it comes time to actually pay for them.
Home warranties are generally only worthwhile when purchasing or selling a home. With many warranties not providing significant value, homeowners are better off saving their money and leveraging other preventative maintenance and home repair options.
Using a home maintenance app like HomeKeep will help you keep track of any existing manufacturer warranties. It will also help you build a customized preventative maintenance plan to help you avoid problems from occurring in the first place preempting the need for a home warranty plan which only covers breakdowns and repairs after a problem actually occurs.