A home warranty is a form of insurance that covers the cost of repairing many home appliances (e.g., washer, dryer, oven, etc.), basic home systems (e.g., plumbing and electrical), and heating and cooling systems (including a hot water heater). Home warranties do not protect against risks such as fires, floods or other acts of nature.

Homeowners may also add to a home warranty policy to cover additional items, such as an in-ground pool or well at additional cost.

Home warranties may cost anywhere from $300 to $600 or higher annually, in addition to a service call charge, calling into question whether the value justifies the cost.  For the most part, they are most appropriate for individuals who buy an existing home; they are usually unnecessary with the purchase of a new home since most appliances are under the manufacturers’ warranties.

Pros

There are several compelling reasons to consider a home warranty, including:

• Protects against unforeseen expenses (considering the average cost of replacing a hot water heater is over $1,200 and replacing an HVAC unit can cost up to $10,000 or more, a home warranty can shield homeowners from large, unanticipated expenses^1,2)
• Knowing that big repair bills won’t upend household budgets can provide a strong sense of financial peace of mind
• Since home warranty companies have existing relationships with local contractors, homeowners are spared the inconvenience and uncertainty associated with shopping for and performing due diligence on contractors

Cons

There are notable drawbacks to home warranties that prospective buyers need to consider, including:

• Pre-existing conditions are not covered
• Homeowners may have to pay a deductible
• Not all costs may be covered (e.g., service calls, flat rate minimums)
• Homeowners are often stuck choosing contractors listed on an insurance company’s “approved list,” reducing the control they can exercise in selecting the best contractor for the job
• A homeowner may be forced to accept repairs over replacement, deferring expenses to a later time when they may cost more and the homeowner will shoulder the expense
• Fine print may contain exclusions and limitations that make having a home warranty less desirable
• Claims can be refused if believed the appliance wasn’t properly maintained, setting up a conflict between homeowner and home warranty company
• The quality of work and speed of service received may be substandard since the best contractors may not need to work with a home warranty company to gain business; moreover, the homeowner is not the contractor’s customer

There are many things to think about as a homeowner, and whether to have a home warranty is just one small consideration.  Contemplate the pros and cons, as well as the age of your home and appliances, along with your financial situation, to determine what is best for you.

Sources:

1. https://www.bobvila.com/articles/water-heater-replacement-cost/#:~:text=According%20to%20Angi%20and%20HomeAdvisor,size%20of%20the%20water%20heater.
2. https://www.bobvila.com/articles/hvac-unit-replacement-cost/

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