Are Home Warranties Worth It?

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When you buy a home with a mortgage, you must get homeowners insurance to cover your home in case you face a major peril, such as hail, fire, theft or if someone becomes injured on your property. Home warranties – on the other hand – aren’t mandatory but many homeowners purchase them anyway for additional protection.

Let’s take a closer look at what a home warranty is, who might benefit from one, how much they cost and more.

A home warranty covers your home's major systems – such as hot water heaters, electrical, HVAC and plumbing systems – in the event that they need to be repaired, serviced or replaced. Your home insurance doesn't cover normal wear and tear on your home's major systems, so that's why you may want to consider getting a home warranty.

Are home warranties worth it? Yes, depending on a variety of factors, from how old your house is to how much money you have on reserve for unexpected repairs.

Is A Home Warranty Required?

Home warranties are not mandatory like homeowners insurance policies. Home buyers have the option of purchasing a home warranty, usually as a 12-month contract.

A home warranty could be worth it, depending on your situation. It's a good idea to assess a few factors ahead of time to decide whether it would make sense for you. Here are a few things to consider when thinking about whether a home warranty is worth it for you.

When Is It Worth Getting A Home Warranty?

Here are a few reasons you may want to consider getting a home warranty:

• You want coverage for out-of-pocket expenses for unexpected repairs.

• You own an older home.

• You have older appliances.

• You worry about the cost to replace parts of your home that are more expensive, such as pools and roofs.

• You don't have an emergency fund or want to use it for other things.

• You don't feel confident that you can fix your home systems on your own when they break.

• You don't want to track down a contractor yourself when something goes wrong.

• You have used most of your savings to buy a home and want a backup.

• You want peace of mind.

When Is It Not Worth Getting A Home Warranty?

On the other hand, there are a few reasons you may not want to consider getting a home warranty. Here are a few:

• You are buying a new construction home. You may already have a manufacturer’s warranty on your appliances and other home systems.

• You think that the cost for the home warranty will cost more than the actual item you think may need replaced.

• You would rather take the chance that nothing will break down in your home.

• You would rather choose your own contractor instead of relying on the warranty company to choose your contractor.

If you’re still having a difficult time deciding whether a home warranty is worth it for you, it might be helpful to be aware of what exactly they cover and protect you from. Let’s take a look at some of the items a home warranty covers, which will fall under two categories – appliances and systems.

Appliances

It will cover major appliances like your stove, dishwasher, refrigerator, washing machine and dryer. Most appliance plan providers include the types of appliances that they will cover under the service contract.

Most appliance plans don’t include small appliances like electric mixers, though you can take an in-depth look at each company you're considering for more information.

Systems

Home warranty companies cover the basic systems that keep your home running properly, such as hot water heaters, electrical, HVAC and plumbing systems. You can check to see whether home warranty plans include service checks and regular maintenance. Some home warranty companies only allow you to claim repairs or replacements.

Most home warranties do not offer coverage for certain systems like your pool, spa, well pump or septic system or roof leak coverage. You must typically select an "add-on" feature for these home systems.

A home warranty shouldn’t be confused with homeowners insurance because they cover different parts of your home under different conditions.

With a homeowners insurance policy, you pay a premium every month for coverage of specific damage done to your home – called covered perils. Each homeowners insurance company has a different list of covered perils.

Example Of Homeowners Insurance In Use

Let’s say a fire that originated from your fireplace caused $10,000 worth of damage to your living room. Your homeowners insurance policy carries a $1,000 deductible, which is the amount you pay before your insurance company kicks in and pays out the rest.

Most homeowners insurance policies include coverage for your home and your possessions. However, if your HVAC system just stops working, your homeowners insurance won't cover the repairs – you must rely on a home warranty.

Example Of A Home Warranty In Use

Home warranties cover repairs and replacements due to normal use and age of the appliance or system. You pay a flat service charge to a contractor when you report a claim.

Here's how this could work. Let's say your heater goes out. You call your home warranty provider, and a licensed repair technician diagnoses the problem and makes necessary repairs. If the repair technician determines that the system needs to be replaced, the technician will arrange for a replacement system for the cost of your service charge.

A home warranty costs about $350 – $600 annually for a basic plan. This means that you'd pay $25 – $50 per month for your premium. You'll also pay a home warranty fee for a servicer to come and make repairs, which usually runs around $100.

You may also have to pay a deductible, which varies depending on the warranty company. Some companies allow you to customize your premium, service fees and add-ons. Be sure to read the fine print on warranty cost before you decide to choose one warranty company over another.

In a buyer's market, a seller might pay for a home warranty if they need an incentive to close a sale. On the other hand, a buyer will usually pay for their own home warranty when it's a seller's market.

A seller may want to purchase a warranty because it sometimes makes the property easier to sell and also protects them from complications that may come up after the sale goes through.

We're sure you’ve wondered about the basics of what a home warranty is, while also considering what company you should get yours from once you determine that a home warranty is worth it for your particular situation.

Here is the full list of the best home warranty companies, including a description for each of our top picks, American Home Shield and America’s 1st Choice Home Club.

American Home Shield

American Home Shield, which has earned a B rating from the Better Business Bureau (BBB) for customer satisfaction, offers a wide variety of coverages for various home systems and appliances. American Home Shield's annual fees range from $480 – $1,000+ per year.

The company, which has been in business for 50 years, also offers add-ons such as roof leak repair, an electronic protection plan, pools and inground spas, septic pumps and well pumps. You can also choose between a $75 – $125 service fee.

America’s 1st Choice Home Club

America's 1st Choice Home Club offers a silver plan, platinum and gold plan along with a systems plan. The plans run from $518 – 709 annually and require a $75 – $125 service fee. The platinum plan offers coverage for 18 systems and appliances. AFC Home Club offers 24/7 customer service and other perks, including free credit monitoring and family emergency services. The company even offers discounts on home security, household items, kitchen appliances and more.

Homeowners can also hire their own contractors or choose from America's 1st Choice Home Club's technician database. The company guarantees parts and labor for the life of its membership. Its Platinum home warranty coverage includes service for washers and dryers, kitchen appliances, HVAC systems, water heaters, electrical systems, plumbing stoppages, ductwork and more.

A home warranty plan covers your home's appliances and major systems in case you need them repaired or replaced. A home warranty is different from your home insurance in that it can cover normal wear and tear on your home's major systems.

Also, unlike homeowners insurance, a home warranty is not mandatory when owning a home. Those who choose to get a home warranty typically pay between $350 – $600 annually for a basic plan.

Before you can take advantage of a home warranty plan, you need a home to live in. If you’re about to embark on the homebuying journey, take action and start your mortgage application online with the Home Loan Experts at Rocket Mortgage^®.