Are Home Warranties Worth It?

It's every homeowner's nightmare — something is broken, and it's going to cost a lot of money to fix or replace it. Unfortunately, no matter how well you take care of your home, sooner or later, an appliance or major system is bound to croak.

Some homeowners purchase a home warranty to cover the costs of repairing or replacing older appliances or systems. These service contracts cover repairs related to general wear and tear from everyday use and can make sense if you can’t afford to save for major repairs. But their exclusions and limitations make them a poor choice if your appliances and systems are still under manufacturer warranty or you can put away money to cover future repairs.

The cost of a home warranty varies by company, plan coverage and your location. The average home warranty plan costs about $58, and plans generally range from about $20 to $120 per month, according to NerdWallet's analysis. But you’ll also pay a service fee every time a technician responds to a claim, making it difficult to estimate the complete annual cost. Regardless of the plan you choose, you’re generally committing to pay at least $240 a year for coverage.

When it might be worth the cost: If you anticipate any appliances or systems wearing out for reasons that will be covered by a home warranty plan, a plan could help you save money on repairs. Most service agreements state which parts or situations are not covered by a plan, such as clearing plumbing stoppages or replacing chains on garage door openers.

» MORE: How to pay for emergency home repairs

When you file a claim with a home warranty company, there’s no guarantee that a technician will repair the appliance or system quickly. Most home warranty providers state in their service agreements that they’ll talk with a technician within 48 hours to schedule an appointment, but a technician might not be available to look at your appliance or system for a few days or a few weeks.

Once a technician looks at your appliance or system, you might have to wait for them to repair it. If they need to order parts or the home warranty company wants a second opinion, you’ll be stuck waiting until the parts come in or another technician is available to come to your house.

Most home warranty companies have a 30-day waiting period for new service agreements. This means you can’t submit a service claim until 30 days after you’ve purchased a home warranty plan. So if you need immediate repairs, a home warranty isn’t going to help you right now.

When it might be worth the time: If you’re comfortable potentially waiting longer for a repair while the home warranty company handles scheduling a technician, a home warranty might be worth the time. But be honest with yourself about how long you’re willing to wait for a repair; your opinion might change if you’re without air conditioning for a week in August.

A home warranty can simplify some aspects of covered repairs, but some customers have found working with home warranty providers to be more of a hassle than a benefit. Issues that homeowners can run into while trying to get a claim approved include:

• Technicians not showing up for appointments, leaving customers to reschedule appointments.

• Providing paperwork to prove an item was well maintained.

• Having to find their own repair companies because a home warranty provider didn’t have a contracted company in the homeowner’s area.

• Waiting for reimbursement for an approved repair.

Not all customers have experienced these scenarios, but any combination can make the process of getting a covered appliance or system repaired more stressful than you expect.

When it might be worth the hassle: Navigating the bureaucratic processes of a home warranty company might be worth it if you can’t save enough money to pay for repairs out of pocket but can afford the monthly premium. It also might be with it if you anticipate needing significant repairs to covered items because of everyday wear and tear.

1. Know what you're paying for

While most home warranty companies offer coverage for the same built-in appliances and home systems, which ones are covered in a plan varies from company to company. This is especially true for plans that combine coverage for some but not all appliances and systems.

While some consumers may expect major units like the central air conditioning, refrigerator, and washer and dryer to be covered under a basic plan, these might require additional coverage or a more expensive plan.

You’re unlikely to see exclusions listed on a home warranty company’s website, but you’ll find them in the service agreement. Before signing up for a plan, ask to see the terms of the service agreement and look for items that are listed as “exclusions.” These are parts or components that your plan will not pay to repair or replace.

» MORE: What does a home warranty cover?

2. Research the company's history to get a fuller picture

While you may start your home warranty research on company websites and best-of lists, these won't tell the whole story of what it's like to utilize your coverage. You can get a clearer idea of a company's reputation by checking out sources like government websites and reading about other customers' experiences.

Consumer reviews, the website for the attorney general in your state, and sites like the Better Business Bureau can all be valuable resources for researching a home warranty company's history and distinguishing those with positive customer reputations and track records.

» MORE: NerdWallet’s best home warranties

3. Find out when exactly your coverage begins

It's common for home warranty companies to start coverage 30 days after the purchase of the contract. Though this will be spelled out in the agreement, it's a detail that homeowners can easily overlook. Waiting 30 days for a new dishwasher may be inconvenient — but waiting that long for a working HVAC system could be more problematic.

4. Read the fine print

A home warranty plan will list the items it covers, but that’s rarely the whole picture. A service agreement will list what is and isn’t covered by a home warranty company. Look for items listed as “exclusions” and read anything in the “Limits of Liability'' section. Examples of things that home warranty companies tend to exclude from coverage include repairs needed due to improper maintenance or natural disasters, preexisting issues (even if you were unaware of them) and roof repairs that are for more than a simple leak.

Home warranties also tend to limit how much a plan will pay toward a repair. Some home warranties limit coverage for big-ticket items like air conditioning systems, leaving consumers to cover the rest of the bill.

For example, sample contracts from leading home warranty companies list limits ranging from $2,000 to $6,500 for work related to heating and air conditioning. However, depending on where you live, the cost of a new furnace can average between just under $3,000 to over $7,000. Knowing your home warranty’s coverage limits and the average cost of certain repairs or replacements can help you calculate if a plan has sufficient coverage for your home.

» LOOKING FOR HOME WARRANTIES? Check out NerdWallet’s best home warranties in California and best home warranties in Texas

If you'd rather avoid navigating a home warranty policy, you could take the cash you would put toward purchasing a home warranty and stash it in an emergency fund instead. And keeping those funds in a high-yield savings account could bring in a little extra cash while you’re waiting for an appliance or system to fail.

You can also explore adding "endorsements" to your homeowners insurance policy. These can expand your coverage to pay for electrical or mechanical damage to appliances, systems and utility lines, though they likely won't cover damage from normal wear and tear.

If you live in an area where natural disasters are common, you can also look into flood and windstorm insurance policies. Home warranties rarely pay for damage caused by natural disasters, so specific insurance policies that go beyond your homeowners insurance could help if your home is affected by high water or strong winds.