Is Buying a Home Warranty Worth It?

Before you buy a home warranty, consider how comfortable you are with the answers to these queries. If you aren’t happy, shop around first.

1. Do I already have protection? As noted above, new-home appliances may already be covered. Even if your appliances aren’t new, they may still be under warranty if you made the purchase with a credit card. That’s because some credit cards extend warranty length. For example, certain Chase cards add 12 months of coverage to a manufacturer’s warranty for items you purchase with them.

2. How much will this warranty cost? The answer depends on the kind of plan you buy and the provider you choose. You can generally purchase one of three kinds of home warranty: a plan for a particular appliance, a plan for all of your appliances, or a plan for your appliances and your plumbing and electrical systems.

Prices will vary depending on where you live. The American Home Shield website, for example, says a plan that covers most major appliances runs about $600 annually for a home in southwestern Ohio. One that also includes kitchen and laundry appliances costs close to $840.

By contrast, a homeowner in Westchester County in New York might cost $960 to cover major appliances and $1,200 to include kitchen and laundry appliances.

In addition to the plan’s cost, there are probably going to be additional expenses. If you have a problem with an appliance or system, even one that’s covered, you’ll have to make a copayment when the contractor comes in to do the work.

3. Am I clear about what the warranty covers? Melanie McGovern, director of public relations for the Better Business Bureau, says that most of the complaints the BBB receives about home warranties involve misunderstanding service and repair issues. In some cases, consumers received a repair that didn’t end up being covered, while in others, it wasn’t repaired to their satisfaction.

The takeaway: Be sure to read the terms and conditions carefully. When we examined home warranty plans, we found that some policies will cover a refrigerator but not the icemaker that comes with it. Other policies may cover a water heater but not the water tank itself.

Don’t be afraid to ask the company all of your questions about the warranty up front. “Really ask questions—to the point of being super-persistent,” McGovern says, and make sure the company gets back to you with answers. “If you can work with a company that has great customer service, that will go a long way to saving you money down the line.”

Sometimes, if your appliance breaks under certain circumstances, it won’t be covered. An oven, for instance, may not be covered if it stops working while in self-cleaning mode or if it’s damaged by a power surge, according to the plans we looked at.

How you care for your appliances may also matter. If you fail to do routine maintenance or if an appliance isn’t properly installed, the home warranty provider could refuse to pay for repairs. There could also be a preexisting condition—even if it wasn’t evident to you when you bought the home warranty—that allows the provider to deny coverage.

4. Will this plan repair or replace a broken item? Most home warranties say that if a repair is considered too expensive, the provider might offer to replace the broken item instead. But in a situation like this, the company may give you only the depreciated value, requiring you to pay the difference out of pocket to get the same model you had before.

5. Are there limits to how much this plan will pay out? There are, but they depend on the kind you purchase and the provider. A plan from America’s 1st Choice Home Club, for example, pays up to $3,000 per membership term to access, diagnose, repair, or replace each item. 

Having a home warranty may provide you with some peace of mind. But you should realize that providers of these plans build in wiggle room that can make it easier for them to deny payouts. To make sure consumers aren’t surprised when they go to file a claim and find it isn’t covered, McGovern encourages them to read their home warranties thoroughly and ask a ton of questions.

A possible alternative to buying one of these plans is to self-insure. Consumer Reports has long recommended that consumers put the money they would otherwise spend on a home warranty or a service contract into a savings account dedicated to product repair and replacement. Or you could stash additional money for those costs in your general emergency fund. Either way, you won’t risk paying for a plan that might not provide the coverage you expect.

If you’re thinking of buying a home warranty, your first step should be to evaluate whether it covers what you want it to. There are plenty of limitations; these plans generally don’t cover nonmechanical items such as windows or the structure of your home, for instance. 

Also keep in mind that if you’re purchasing a new home, the items inside are probably still covered by the manufacturer’s warranty and the builder’s warranty, says Edgar Dworsky, a consumer lawyer who runs the website Consumer World. You may have more reason to consider a home warranty if the home and the appliances are older.