Should You Buy a Home Warranty?

Lots of things you buy come with a warranty in case they break down, from cars to smartphones. But what about homes? It turns out you can get a home warranty, too.

A home warranty, like so many things in our lives, is something that we don’t often think about until we absolutely need it. Sure you have home insurance, maybe even flood insurance, but that only covers certain situations.

Homeowners or renters insurance can cover damage to your home from things like fire, theft, storms and some natural disasters. While renters insurance is elective, homeowners insurance is a requirement if you have purchased a home.
In addition to your homeowners insurance plan, you can and should choose to purchase a home warranty to protect your belongings in a way that insurance lacks.
If you’ve ever purchased a large appliance, a computer, or even a television from a retailer then you’re probably familiar with the concept of a warranty.
Don’t mistake a home warranty for homeowners insurance, which covers your home’s structure and belongings in the event of a fire, storm, flood, or other accident. A home warranty, in comparison, will cover repairs and replacements on systems and appliances due to normal wear and tear—no calamities required.

A home warranty generally covers these items:

• Electrical systems
• Plumbing systems
• Heating and cooling systems
• Washer and dryer
• Kitchen appliances such as the oven, range, and garbage disposal

What a home warranty covers will depend on the plan that you choose and there are a lot to choose from. A home warranty can cover anything from your microwave oven to your plumbing and your electrical system.
Deciding which plan is right for you will determine what items and systems it covers and how much it will cost. Typically, a home warranty is charged as either a small monthly or annual fee that can save you a lot of money in the long run.

Is a home warranty right for you?

Sellers may offer a year of coverage as an incentive to home shoppers. Real estate agents sometimes give home warranties to clients as a thank you gift for purchasing a home. Some buyers of older homes find that a warranty gives them confidence.
Other homeowners decide they’re better off setting aside savings to cover home repairs and replacements.

One way to think about your needs: Compare the age of each covered item with its average life span. To do so, use the chart at the National Association of Certified Home Inspectors website.

With expensive components near or past their life expectancy, a home warranty might be a good idea. Components that have pre-existing problems, however, typically are excluded from protection.

Pros of home warranties

Buyers who purchase a previously owned home inherit used appliances and home systems with wear and tear. A home warranty can help cover the cost if things break down.

For example, if fire destroys your boiler, it might cost more than $10,000 to replace. A home warranty might cover at least a portion of the cost.

Cons of home warranties

However, for many homeowners, there is a wide gap between what the customer expects and what the plans deliver. Before buying a home warranty, read the contract and understand exactly what it does and does not cover. For example, some contracts will not provide coverage if:
• You didn’t maintain the appliance.
• The appliance was installed incorrectly.
• The appliance had too much wear and tear.

If you haven’t read the agreement carefully, be prepared for surprises. Don’t assume:
• Your policy will replace a faulty component. The warranty company might insist on repairing it instead.
• You can call your favorite service provider. Home warranties usually require you to use a contracted servicer.
• The warranty will cover the entire cost. In some cases, the warranty will cover just a fraction of the repair cost.

While not everyone will think a home warranty is worth it, it is a good idea for people who lean toward the “better safe than sorry” approach when buying a home, or if the home and the appliances are older.