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” The answer depends on your financial situation and the house in question. For buyers with a mortgage, home insurance is required by lenders to protect their investment — and yours. Homeowners insurance covers catastrophic events caused by weather, fire, and theft. Don’t trust the customer testimonials that appear on a home warranty company’s website, either. You’ll likely find mostly five-star ratings and rave reviews.
Home warranties fill in some protection gaps left by homeowners insurance, and they can cover secondary damage, appliances, and home systems. You’ll need to read your terms and conditions closely to know exactly what’s included. Contracts typically place limitations on not only the types of covered items, but also the conditions under which they’re eligible for a claim. Many home warranties only cover breakdowns due to normal wear and tear.
Are home warranties worth it? Maybe, if you choose carefully
Home warranties usually remain optional when you borrow money to buy a house, but insurance is typically required. Basic home warranty plans cost an annual average of $350 to $600, or $29.17 to $50 per month. Services fees are usually $50 to $100 for each repair or replacement.
Ultimately, you have to decide if the peace of mind matters more than the expense. Barbara writes about a range of subjects, including homebuying, real estate, retirement, taxes and banking. Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today.
Are Home Warranties Worth It?
Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry. “Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.
She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor. If you can handle many routine maintenance tasks yourself, or want the flexibility to shop around among repair professionals, a home warranty also likely wouldn't make sense in your situation. The lead information obtained will be sent to the respective companies as selected by the readers.
Home warranty basics
While home warranties can be beneficial, they also have limitations and do not cover everything. It’s vital to read the fine print and do your research so that you understand the pros and cons of these types of contracts. Here are some of the benefits and drawbacks to keep in mind.
Home insurance covers loss of or damage to the structure of the house due to natural disasters. In contrast, a home warranty covers major appliances such as water heaters, microwave ovens, and refrigerators, and systems such as plumbing, HVAC, and electrical. Many people get a plan when buying a new home to protect against the cost of potential repairs or replacements, but you can obtain one at any point during homeownership. When you purchase or rent a home, chances are you will be offered a home warranty as protection against costly unforeseen repairs. It sounds like a great idea, especially since the average monthly fee for home warranties isbetween $25 and $50. Home warranties will cover the cost of repairing many appliances and household systems.
How long do home warranties last?
As the buyer, always ask the seller what appliances or systems are currently under warranty, either manufacturers’ or home. I they happen to have a home warranty, and get the documentation about the policy, so you’ll know when the coverage ends; you could also see about getting it transferred over to you. It’s also smart to ask for a maintenance history of the major components of the home. Make sure you understand the terms and conditions of the home warranty, how long the coverage lasts and what it will and will not cover.
Also, a homeowner who tries to use the warranty and has the claim denied will probably feel like the money spent on the premium and the service call fee were wasted. Home warranties aren’t expensive compared to the cost of repairing or replacing most of a home’s important components, and this fact is one of a warranty’s major selling points. However, there may be many years when nothing at all breaks down or wears out in the home. Or, the cost of fixing them wouldn't meet the policy's deductible—the dollar point at which insurance coverage kicks in. A basic or standard plan may cover appliances such as a refrigerator or stove, but things typically not available with every house, like septic systems or swimming pools, must often be added on. The national average for a home warranty costs $1,050 yearly.
So don’t rely on the one your seller provides without reading through it first. Also, homeowners insurance is usually required by your mortgage company. If you don’t research home warranties carefully, you could end up with a contract that costs a lot and offers very little protection. In these years the homeowner gets nothing in exchange for her premium. If that money had been put into an emergency fund, it would’ve earned some interest at least.
If you lack skills around the house and value peace of mind and predictability, the answer could be yes. If you live in a brand new house or are worried about the cost, be sure to examine your options and compare prices before you purchasing a home warrantycommit to a home warranty policy. As with any contract you sign, it’s important to read the fine print so you know exactly what is covered and any limits that may be applied.
When a covered system breaks down, you file a claim, and the company sends a qualified contractor to your home. You pay a service call fee — and as long as the repair or replacement is covered, the home warranty company covers the cost. Home warranty coverage is frequently confused with homeowners insurance, but the two are quite different. A home warranty pays for repairs or replacements of important home systems and appliances when they break down from normal use. For a monthly premium of around $39-$59 a month and a service call fee ranging from $65-$85, it sounds like getting a home warranty is an obvious benefit.
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