Money Monday: Pros and Cons of a Home Warranty

Angeline Combs Unlock Technologies Staff Writer

A home warranty can protect you from outrageous replacement costs for critical systems in your home.

Key takeaways

  • A home warranty can cover replacement costs of critical systems in your home.

  • Warranties can cover many things, but they are often used to insure HVAC, plumbing and electrical systems.

  • Coverage will be very specific, and premium costs can vary wildly. Do your research.

66 percent of home buyers report the failure of two major items in their home within the first year of ownership, according to warranty provider Global Home USA. As a homeowner, you may not know how to fix these things. That's perfectly okay. And that's why home warranties can provide peace of mind if something goes wrong.

What is a home warranty?

It’s important to note what a home warranty is not: it is not homeowner’s insurance, and not a replacement for it. Warranties do not provide the same coverage as an insurance policy. Each product serves different functions.

A home insurance policy may cover major hazards such as fires, earthquakes, certain types of water damage, and crimes against your property. It can also cover your personal possessions such as jewelry or furniture inside your home. A home insurance policy is designed to cover losses and damages to your home and valuable possessions inside it if stolen or destroyed in an insured incident.

A home warranty is a service contract that can cover the cost of repairing many home appliances or home systems if they break down. Typically, the systems covered are HVAC, plumbing, and electrical systems. It may also cover major appliances, such as washers and dryers, refrigerators, even swimming pools. This provides a way to avoid expensive repair bills. The warranty provides discounted repair and replacement services for these things.

For example, if your AC suddenly stops working, you’d submit a request for service to the home warranty company. They’ll dispatch a licensed contractor of their choice to your home to do the fix. You pay a service fee (like a co-pay) ranging from about $65 - $125. Without a warranty, you’d pay your tradesperson the full cost for parts and labor. Home warranties do have limitations, and not everything is covered.

Coverages and limitations will be detailed by the warranty company. It’s important to read the fine print so there are no misunderstandings later. In most cases, the annual average cost of a warranty program ranges from $300 to $600. Prices will vary depending on where you live.

A graphic showing replacement costs of home projects.

What are the pros and cons of a warranty program?

Pros

The biggest benefit is peace of mind. If your water heater goes belly up, you know that a licensed contractor will be there to replace it. For this reason, warranties are a good choice for those who are not very handy, or first-time homebuyers who may not have experience with maintaining the infrastructure of their home. For a homeowner who doesn’t have an emergency fund or wants to reserve that cash for other priorities, a home warranty can act as a buffer.

There is also a high level of convenience. The company you choose will already have vetted contractors that are reasonably priced, and will schedule them too, saving you time on research and gathering quotes.

Cons

Prior to choosing a home warranty company, do your research. Know what you’re paying for. The warranty covers only what's specifically mentioned in the agreement and nothing else. Read the fine print and make sure it covers what you need. Appliances or systems that were already broken or initially installed improperly won't qualify. Sprinkler systems and other things outside the home - such as septic tanks - are not covered.

Basic warranty coverage at a low price may not be enough for your needs. Sometimes the basic option does not include your appliances or an in-ground pool. If you need those covered, you may need a kicked-up program. Doing the research upfront, before you sign a deal, will ensure you get the peace of mind you are looking for!

##The bottom line

A home warranty can help protect you from the unexpected. It can be an affordable way to properly protect your home. You can save money by avoiding the need to replace whole-home systems or appliances. It is important to be mindful when researching what the warranty covers and does not The best program will strike a balance between affordability and ample coverage.

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Angeline Combs

Unlock Technologies staff writer