Do Home Warranties Save You Money?

Every day, millions of homeowners and homebuyers consider whether a home warranty is a worthwhile investment. With home repairs often carrying hefty price tags, many wonder if a home warranty will actually save them money or if it's an unnecessary expense. While there’s no cut-and-dry answer to this question, we’ll help you understand how a home warranty could save you money.

Understanding Home Warranties

A home warranty is a service contract that helps homeowners pay for repairs or replacements of important home systems and appliances that wear out over time. This warranty can help give you peace of mind, knowing that if your heating system, air conditioner, or kitchen appliance breaks down, you have support to handle the costs.

But keep in mind that a home warranty is not the same as homeowners insurance. Homeowners insurance protects you from damages caused by unexpected events like fires, storms, or natural disasters.

Commonly covered items include:

• HVAC systems (heating, ventilation, and air conditioning)
• Plumbing and electrical systems
• Kitchen appliances (refrigerators, ovens, dishwashers, etc.)
• Water heaters

Coverage varies by provider and plan, so make sure you carefully review all details before purchasing a policy.

Potential Cost Savings

A home warranty isn't guaranteed to save you money, but it may. Here are two ways purchasing a home warranty policy could protect your home and your wallet:

1. Protection Against Major Repair Costs

Repairs and replacements for major home systems can be expensive. A home warranty can help significantly reduce these out-of-pocket costs. According to industry estimates:

• A new HVAC system installation can cost between $5,000 and $20,000.
• A water heater replacement can range from $800 to $3,500.
• Refrigerator repairs can cost anywhere from $200 to $1,500.

If a covered system or appliance breaks down, a home warranty could save a homeowner thousands of dollars in repair or replacement costs. However, home warranty plans require a service fee (typically $75 to $125 per claim) and a premium, and they may have coverage limits on certain items.

2. Budgeting and Predictability

If you don't have enough savings for unexpected home repairs, a home warranty can help you manage costs. With a warranty, you pay a set annual or monthly fee instead of worrying about things like a surprise $3,000 furnace replacement.

Home warranties usually cost between $300 and $800 per year, depending on the coverage you choose. Basic plans often cover essential systems like heating and plumbing, while more comprehensive plans may also include appliances (or some providers offer appliance-only plans!). This system lets you budget for maintenance costs, reducing stress when major repairs are needed.

Limitations and Hidden Costs

While home warranties offer some level of financial protection, they also come with potential downsides that could impact cost savings.

1. Coverage Exclusions and Fine Print

One of the biggest complaints from consumers is that certain repairs are not covered. Many policies exclude pre-existing conditions, improper maintenance, and accidental damage. Some plans also have caps on repair costs, meaning if a system exceeds a certain dollar amount, the homeowner must cover the difference.

2. Service Call Fees and Deductibles

Most home warranty claims require homeowners to pay a service call fee each time a technician is dispatched. If multiple appliances break in a short period, these fees can add up quickly.

3. Limited Contractor Choice

Home warranty companies usually work with a set group of contractors. This limits homeowners' control over who does the repairs, and some homeowners are not happy with the quality of service or the time it takes to get repairs done.

When a Home Warranty is Worth It

A home warranty may be a good investment for:

• Older Homes: If your home has aging appliances and systems, the likelihood of needing costly repairs is higher.
• Limited Emergency Fund: If you don’t have savings set aside for major repairs, a home warranty can provide peace of mind.
• Buying a Home with Unknown History: If you’re purchasing a pre-owned home and are unsure of the maintenance history, a home warranty may help cover unforeseen repairs.

When a Home Warranty May Not Be Necessary

Not all homeowners benefit from a home warranty. It may not be a good fit if:

• Your home and appliances are new: Most new appliances and systems come with manufacturer warranties that provide free repairs or replacements for the first few years.
• You have a solid emergency fund: If you have money set aside for home repairs, a home warranty may not be necessary.
• You prefer hiring your own contractors: If you want complete control over who services your home, a warranty may limit your options.

Bottom Line: Will a Home Warranty Save You Money?

Again, it may. We can't say for certain that it will because everyone's situation is different. If you buy a home warranty and never need to use it because your appliances or home systems never fail, then you're not really saving money. But, even in this case, a home warranty can help provide peace of mind, just in case, and that still may be worth the cost of a monthly or yearly premium.

Some of the key factors in determining whether a home warranty will save you money include:

• The age and condition of your home’s appliances and systems
• The cost of the warranty compared to potential repair expenses
• Your ability to handle unexpected repair costs out of pocket

To save money, homeowners should compare different home warranty providers and review the details of each policy. It's also important to have realistic expectations about what is covered. Checking reviews of top-rated home warranty companies (like those on BestCompany!) can help you choose a policy that meets your needs.

Before buying a home warranty, assess the risks in your home and see if the policy fits your budget. If you make the right choice, a home warranty can provide useful protection and may help you save money in the long run.