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Home Warranties: Money Pit or Homeowner Lifeline?

If you recently purchased a large home appliance, you were probably asked at checkout if you wanted to buy an extended warranty. Lisa McGreevy was asked if she wanted to purchase a protection plan for her new refrigerator last year, which she ultimately turned down. But what about a warranty that covers every appliance you already own, no matter how old they are?

This is called a home warranty, also known as a home service contract, and they cover every system and appliance in your home. Unlike homeowner’s insurance, which covers your home in the case of a fire, damages from a storm – other than flooding, which is often its own separate policy – and damages or losses due to burglary, home warranties cover things like the dishwasher, water heater, refrigerator, stove, furnace, washer, dryer and the central air unit. You can think of home warranties when you think of anything in your home that will naturally breakdown over time due to daily wear and tear.

Do Home Warranties Really Save You Money?

This all depends, of course, on what kind of plan your home warranty is – and who it’s with – and the status of your home appliances.

Most new appliances today are covered by a manufacturer’s warranty, which guarantee the product in the instance of any design or manufacturing defects. These kinds of product warranties are typically offered for 1-2 years from the date of purchase, but some are made available for as many as 5 years. Depending on the home appliance, an extended warranty can add several hundred dollars to the total purchase price. In the instance of Lisa’s French door refrigerator, depending on where she ended up buying it from, would have added anywhere from $125.00 to $210.00 to the cost.

And, what’s covered? The biggest downfall of product warranties is that they don’t typically specify when a product will be repaired or replaced, and some manufacturers require that the product be returned to them before they make a decision on whether or not they will repair or replace it, which can not only take a long time but can also be very inconvenient. Most consumers want appliances, especially the ones they use daily, like a dishwasher, refrigerator or washing machine to be fixed immediately. All of that aside, most product warranties also do not cover preventative maintenance, and with most products deteriorating to the point of needing repair outside of the parameters of product warranties, it’s often not worth it to buy the extensions.

Home warranties, on the other hand, have yearly premiums that range anywhere from $250.00–$450.00 and include deductibles, which, on average, span $50.00–$75.00. They cover all major household appliances and systems, and people can customize their plans to include less or more so it makes sense for them and their home. Want to make sure your pool pump is covered? Or, that you don’t have to worry about your garage door opener malfunctioning? There are add-on options available to make sure you’re covered.

The 4 Biggest Scenarios When Home Warranties Make Good Financial Sense

1. When you have really old appliances.

Home warranty plans cover unknown pre-existing conditions and naturally occurring deterioration, like rust, of a home's systems and appliances. The older those systems and appliances, the more likely you are to benefit from a home warranty plan.

Purchase tip: Be sure to check what the home warranty’s deductible is, and if there is a limit on service calls per year.

2. When you go to buy (or sell) a home.

On either side of the real estate transaction, a home warranty plan is great to have in place. Namely, because you don’t know how the home was maintained before you. What if right before selling the homeowners changed out the air filters but for the five years of ownership leading up to that they were never changed? Chances are, there could be vent or ductwork needed in the near future; meanwhile, you just bought the place and had no idea. Some of this crosses into the home inspection territory, but they’re not always so granular and certainly don’t always catch everything. Plus, it’s nearly impossible to predict when something like a refrigerator motor will go or when an icemaker will stop working.

3. When you don’t have $1,000.00 saved up.

According to a Bankrate.com survey, only 37 percent of Americans have enough in savings to pay for a $500.00 or $1,000.00 emergency. Unplanned expenses are kind of the nature of the game when it comes to homeownership, but if you realistically could not pay out of pocket to replace your refrigerator, or washer, or dryer, or central air unit, or all of them all at once, a home warranty can keep those big costs to a minimum.

4. When you don’t feel comfortable hiring your own repair technician.

One of the biggest values of a home warranty is the network of repair technicians. Most home warranty companies have a ranking system for their techs, so if someone receives poor ratings, they will be replaced by others who are known to do a good job.

Like any contract, it’s important to read through all of the details. Make sure you’re getting the coverage you think you’re signing up for by comparing quotes. Couple this with crosschecking review sites to make sure your coverage is being provided by a reputable company with good customer satisfaction ratings that has proven to pay out on repair and replacement costs. For homeowners, home warranties can make for a great financial peace of mind.