Is a Home Warranty Service Right for You?

Home warranties are contracts a homeowner can purchase that protects the major systems and appliances in a home. These warranties can be found online and some mortgage companies offer them as a service to their customers. The fees are usually paid out monthly and the payments start around $29. Pricing depends on the individual company and what systems and appliances you wish to cover.

I have a home warranty. The contract was purchased through my mortgage company back in 2007. The service has been used twice. Once was a plumbing issue where the seals failed on the toilet in a bathroom and most recently when the central air conditioning unit stopped working. Purchasing the home warranty turned out to be a smart decision. The entire HVAC system for the house is getting replaced, I just have to pay for permits, removal and disposal of the old unit, and for some duct work. Total out of pocket expenses for this repair is $500.

How a home warranty works

In a nutshell, you purchase a yearly contract that is usually renewable. Read the contract carefully so that you understand what is covered and what is not. When you have a problem with a covered system or appliance, you call the warranty company. They will either give you the contact information for a contractor or they will arrange for someone to come out to your home. You pay a deductible, or service fee for each call. The fee is a fixed amount no matter what the problem is. If the repair requires multiple trips to your home, you only have to pay the fee once per repair. This service fee is in addition to the monthly payments.

Do you need a home warranty?

Deciding if you need a home warranty is a personal choice. The deciding factors for me were the age of the systems in the house. My warranty covered all plumbing, electrical, HVAC, ceiling fans, garbage disposal, water heater, and the washer/dryer. The house was built in 1988 and the major systems except the water heater were original to the house.

If your home is new and your major appliances are under manufacturers warranty, then you might not need a home warranty. In older homes where the appliances and systems are starting to age, it may be a good idea. For example, my warranty company gave me the option of having them replace the unit and I pay for the items that were not covered or they would reimburse me up to $1,800 for a new system of my choice. After pricing several systems and realizing that I could not purchase and install a similar unit for under $4,000, I decided to let the warranty company handle the replacement and installation.

Seniors and people with disabilities who cannot move or lift heavy objects may want to consider a home warranty. The small monthly fee offers piece-of-mind when a repair is needed. There is only one phone number to call and the warranty company handles the appointment. Home warranties eliminate the possibility of price gouging and excessive labor charges. You pay the preset service fee and other applicable charges--these are clearly laid out in your contract.

Do the math

I paid a total of $1,400 in monthly payments since purchasing my home warranty contract. Adding in $60 for the plumbing call and $500 to replace the HVAC system brings my total out of pocket for the contract since 2007 to $1,960. A new HVAC system (heat pump, air handlers, installation, duct work, permits, and disposal of the old freon based system) would have cost me at least twice that amount if I paid for it out of pocket. The new system will significantly increase the resale value of my home, which I plan to sell in the near future.

Read the contract

Make sure that you understand what is covered and what is not. It does not make sense to purchase a home warranty that covers appliances and systems that are under a manufacturers warranty. If you have recently updated your home, and the repairs are guaranteed then a home warranty may not be right for you. Some warranties will not cover systems or appliances that are very old, you have to read the entire contract to know what is covered and what is not. Know all of the exclusions. Some warranties specify the home must be owner occupied. Other contracts may transfer to a new owner if the house is sold. Make sure that you know what you are buying--this avoids unpleasant surprises when a repair is needed.

A home warranty is one way that home owners can protect their investment. The decision to purchase a contract is a personal one--it depends on your current situation. Weigh all of your options and carefully read the contract before making your decision.