Whether or not a home warranty is worth the money is debatable. In fact, it is a debate that has been going on for years. Though a home warranty is a service contract and not an insurance policy, advocates of home warranties tend to see them as a safety net against major unexpected repairs. Opponents suggest those cases are very rare and that the costs exceed any savings on the bulk of repairs. Let’s take a more detailed look at the arguments for and a against buying a home warranty.
PRO: Major systems are typically covered and they can be expensive.
A typical home warranty provider will offer several tiers with increasing prices corresponding to increasing coverage. The most basic tiers will usually cover the major systems of the home, such as plumbing, electrical, and heating systems; as well as major appliances like the refrigerator, dishwasher, and range. Higher tiers may cost an additional $100 to $300 or more per year and expand coverage to include well or septic systems, ceiling fans, or washers and dryers.
Obviously, some of these systems can require very expensive repairs. A new heat pump can easily run over $1,000 and a major plumbing or electrical problem could require opening up walls or tearing up floors, meaning high labor costs. These are the large-ticket items that home warranty advocates base their concept of value on.
CON: There are usually loopholes and the home warranty company doesn’t want to pay.
It is important to read the fine print on the home warranty plan. Many plans provide restrictions to limit their liability. For example, it is not uncommon for the contract to state coverage will not extend to any system or appliance that was improperly installed, poorly maintained, or previously repaired. Just to expand on one of these scenarios, you may find your home warranty is completely useless if the previous owner of your home was lax in their maintenance. And another thing: who determines all of this? The contractor that the home warranty company refers to come out to inspect the problem.
PRO: But someone else usually pays for the first year.
It is not uncommon for the first year of a home warranty to be paid by the seller (this can be negotiated in the purchase contract) or provided as a closing gift by your Realtor. Therefore, the coverage is provided at no cost to you.
CON: Nothing is free. There are costs associated with using it.
If you contact the home warranty company to handle a repair you believe to be covered, they will send their preferred contractor in your area and, most of the time, there is a service fee involved. This fee, usually anywhere from $50 to $100, may be charged just for showing up. So if the contractor cannot fix whatever the issue at that time, you will pay another fee when they return. Reports of multiple repairs, and services fees, being attempted before finally replacing something that keeps breaking are not uncommon. Oh, and there may be a deductible, too. Before you know it, you could be several hundred dollars into a repair/replace situation that would have cost just as much money (or less) with a lot less hassle through a better contractor of your choice.