When buying a home, you’re likely to hear about both homeowners insurance and home warranties, but what’s the difference? While homeowners insurance protects you against major perils like fire or theft, a home warranty covers repairs and replacements for your home’s major systems and appliances due to normal wear and tear.
So, are home warranties worth it? The answer depends on your situation, including the age of your home, the condition of your appliances and whether you have an emergency fund for unexpected repairs. While a home warranty isn’t required, it might offer valuable peace of mind for homeowners who want to minimize out-of-pocket repair costs.
Key Takeaways:
- A home warranty may be worth it if you own an older home, don’t have an emergency fund or want some extra peace of mind when it comes to your house.
- A home warranty may not be worth it if you own a newer home – especially if you have the manufacturer’s warranty on appliances and home systems.
- Alternatives to home warranties include building a healthy emergency fund or adding endorsements to your home insurance policy.
Is A Home Warranty Worth It For Me?
A home warranty could be worth it, depending on your situation. It’s a good idea to assess a few factors when answering the question, “Do I need a home warranty?”
Costs may be a primary concern. To determine whether or not a home warranty is financially worth it, estimate how much you spend on home repairs each year, on average. Then get an estimate for how much a home warranty would cost each year, plus any additional fees you’d have to pay out of pocket.
For example, say you, like the average homeowner in 2024, spend $2,728 annually on routine maintenance and emergency home repairs. If a home warranty plan costs you $1,000, and between service fees and contract exclusions, you expect to pay an additional $3,000 out of pocket, you’d be better off financially without the home warranty.
When Is It Worth Getting A Home Warranty?
You may want to consider home warranty coverage if you:
- Want coverage for out-of-pocket expenses for unexpected repairs
- Own an older home
- Have older appliances
- Worry about the cost to replace parts of your home that are more expensive, such as pools and roofs
- Prefer using your savings for travel, splurges or other expenses
- Want to rely on professionals to fix your home systems when they break instead of attempting to handle issues yourself
- Prefer going through your home warranty seller to find a contractor when something goes wrong
- Have used most of your savings to buy a home and want a backup
- Want additional peace of mind
When Is It Not Worth Getting A Home Warranty?
On the other hand, you may not want a home warranty if you:
- Are buying a new construction home, as you may already have a manufacturer’s warranty on your appliances and other home systems
- Aren’t sure whether your items have been properly maintained, or you know they haven’t been properly maintained
- Think a home warranty will cost more than the actual item you think may need to be replaced
- Would rather take the chance that nothing will break down in your home
- Would rather choose your own contractor or make repairs yourself instead of relying on the warranty company to choose your contractor
- Would rather not work with two companies – the home warranty company and the repair company – anytime something breaks
- Are concerned about long potential wait times or a lack of contracted repair companies in your area
- Don’t have a detailed record of regular maintenance, as some home warranty companies require this proof when you make a claim
- Want to make sure issues can be handled as quickly and efficiently as possible without waiting for reimbursements
A home warranty isn’t required, so it’s worth evaluating your budget and home condition when deciding whether or not it’s a good investment.
What Are Alternatives To Getting A Home Warranty?
Some people may find home warranties aren’t worth it. If you choose not to get a home warranty, there are some alternatives that can help you prepare for unexpected repairs and replacements.
One alternative is to set up an emergency fund for home repairs. An emergency fund provides a cash cushion in case of unexpected repair costs. Plus, if you keep this money in a high-yield savings account, you can earn interest on your balance. If you go this route, make sure you’re diligent about keeping your emergency fund full. If it’s empty, it won’t do you any good.
Adding endorsements, or riders, to your home insurance policy is another alternative to a home warranty. An insurance endorsement is additional coverage you purchase to cover specific damages that aren’t part of your standard insurance policy. For example, you can purchase an endorsement to extend coverage to electrical or mechanical damage to home systems or to protect against flood or wind damage.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
What Does A Home Warranty Cover?
A home warranty commonly covers the following:
- Appliances: A home warranty will cover major appliances like your stove, dishwasher, refrigerator, washing machine and dryer. Most appliance plan providers include the types of appliances that they will cover under the service contract. Most appliance plans don’t include small appliances like electric mixers, though you can take an in-depth look at each company you’re considering for more information.
- Systems: Home warranty companies cover basic systems, such as electrical, HVAC and plumbing systems. You can think of these as any systems that keep your home running. You can check to see whether home warranty plans include service checks and regular maintenance. Some home warranty companies allow you to claim repairs or replacements only.
Most home warranties do not offer coverage in basic plans for certain systems, like your pool, spa, well pump or septic system, or roof leak coverage. You must typically select add-on coverage for these home systems.
Homeowners Insurance vs. Home Warranty
Don’t confuse homeowners insurance with a home warranty because they cover different parts of your home under different conditions.
A homeowners insurance policy covers specific damage done to your home – called covered perils. Each homeowners insurance company has a different list of covered perils.
Here’s how homeowners insurance works on a basic level. You pay a premium every month for homeowners insurance. Let’s say that a fire that originated from your fireplace causes $10,000 worth of damage to your living room. Your homeowners insurance policy carries a $1,000 deductible, which is the amount you pay before your insurance company kicks in and pays out the rest.
Most homeowners insurance policies include coverage for your home and your possessions. However, if your HVAC system just stops working, your homeowners insurance won’t cover the repairs. You must rely on a home warranty.
Home warranties cover repairs and replacements due to normal use and age of the appliance or system. You pay a flat service charge to a contractor when you report a claim.
Here’s how this could work. Let’s say your heater goes out. You call your home warranty provider and a licensed repair technician diagnoses the problem and makes necessary repairs. If the repair technician determines that the system needs to be replaced, the technician will arrange for a replacement system for the cost of your service charge.
However, the value of your home warranty depends on your policy’s home warranty coverage. So it’s essential to carefully review the policy details, including covered and excluded systems, conditions that void coverage and service costs. For example, some policies void repairs if you attempt to fix them yourself first.
Another consideration is the maximum allowable reimbursement for new units. For example, if a policy covers $6,000 for a new HVAC system but you can’t find one for less than $8,000, you’ll have to pay at least $2,000 out of pocket. For these reasons, it’s crucial to read a policy’s exclusions and fine print.
Ready To Refinance?
Get matched with a lender that can help you reach your financial goals.
Who Typically Pays For A Home Warranty: Buyers Or Sellers?
In a buyer’s market, a seller might pay for a home warranty if they need an incentive to close a sale in a slow market. For example, if they’re selling an older home where systems and appliances are rapidly aging, a home warranty can sweeten the deal for a buyer and help both parties avoid any post-sale disputes.
On the other hand, a buyer may pay for their own home warranty in a seller’s market.
However, if a seller doesn’t already have a warranty, you, the buyer, may be able to negotiate one in the home sale. To do so, communicate how the warranty protects both parties, ensuring lower-cost repairs and efficiency during the sale of the home.
Regardless of who’s purchasing a home warranty, the steps to do so are relatively simple:
- Figure out what coverage you need: For example, do you need system coverage, appliance coverage or both?
- Consider your budget: Determine how much you can afford to spend on a home warranty, keeping average home warranty costs in mind.
- Compare home warranty companies: Read up on costs, exclusions, customer service and customer satisfaction. The Better Business Bureau can be a helpful resource for finding customer ratings and reviews.
- Review a sample contract: Find a sample contract for the company you’re considering, either on its website or by searching online. While your contract may look different, a sample contract can help you learn about coverage limits, repair costs, exclusions, the claims process and more.
- Get quotes and compare: Based on your research, choose your top few companies and plans and request quotes. Then make a decision on the policy that’s best for you.
View Your Refinancing Options
Find a refinance lender that will work with your unique financial situation.
How Much Does A Home Warranty Cost?
A home warranty costs about $350 – $600 annually for a basic plan. This means that you’d pay $30 – $50 per month for your premium. This varies based on location, the size of your home and your coverage plan. You’ll also pay a home warranty fee for a servicer to come and make repairs, which usually runs around $100.
You may also have to pay a deductible, which varies depending on the warranty company. Some companies allow you to customize your premium, service fees and add-ons. Be sure to read the fine print on a warranty’s cost before you decide to choose one warranty company over another.
How To Compare Home Warranty Companies
Now that you understand the basics of what a home warranty is and whether you need one, the next step is to consider which company you should work with.
When researching home warranty companies, compare costs (annual costs and service fees), coverage options and customer satisfaction. Be sure to also find out about any exclusions, like cosmetic fixes or preexisting conditions.
Consult the full list of the best home warranty companies. Find details for two top home warranty companies, American Home Shield and AFC Home Warranty, below.
American Home Shield
- Key features: Covers 14 to 23 major home systems and appliances (depending on the plan you choose); $5,000 per HVAC system
- Cost: $480 – $1,000+ annually, plus a $100 or $125 service fee
- Coverage options: ShieldSilver, ShieldGold and Shield Platinum
- Additional benefits: Available add-ons such as roof leak repair, pools and inground spas, septic pumps and well pumps; partner discounts; video chat with repair experts
AFC Home Warranty
- Key features: Covers nine to 24 home systems and appliances (depending on the plan you choose); in-house service team; ability to choose your own technician; guaranteed parts and labor throughout the life of the plan
- Cost: $518 – 709 annually, plus a $75 – $125 service fee
- Coverage options: Silver Plan, Gold Plan, Platinum Plan and Diamond Plan
- Additional benefits: Extra coverage for pools, spas, tankless water heaters and more; discounts for seniors, veterans, active-duty military and having multiple properties
The Bottom Line
A good home warranty plan balances affordability with comprehensive coverage. It can provide financial peace of mind by saving on repairs or replacements for covered systems and appliances. This is especially important if you don’t have a budget for unexpected repairs.
When shopping for a home warranty plan, carefully compare your options based on costs, exclusions and customer satisfaction. Make sure you fully understand a home warranty contract before making a purchase.
Your home is likely your biggest investment and knowing that the systems that keep you safe and comfortable are under warranty can provide immense peace of mind. But don’t purchase a home warranty before carefully reviewing policy details and weighing the costs.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
