My wife and I live in an old house that sometimes shows its age.
Not long after we bought the place, we returned from a restful winter weekend getaway to a bone-chilling surprise. At some point while we were gone, the aging thermostat failed to call for heat, leaving the boiler idle as the outside temperature dove below zero. With the home’s insulation no match for the bitter cold, the inside temperature plummeted too, freezing sections of the home’s hydronic radiant heating system.
We were able to coax the thermostat to life again and quickly set up space heaters to make our bedroom tolerable, but it took days – not to mention hours spent blow-drying the frozen radiant heating pipes – to get the whole house back to the right temperature. We put in an emergency call to an HVAC service company to confirm what we already knew: Our thermostat was shot and would need to be replaced, along with the mechanism controlling the radiant heat pump. The bill was extortionate, but what could we do – frantically jiggle the thermostat every time we wanted to turn the heat on?
It could have been worse. Had we spent another subzero night out of the house, our fresh water pipes almost certainly would have burst, causing thousands of dollars in damage and temporarily forcing us out of the house. But the incident was traumatic and costly enough as it was to get us thinking about augmenting our existing homeowners’ insurance policy with a form of protection we hadn’t previously considered: a home warranty plan.
Should you consider a home warranty plan? Here’s what you need to know to decide.
What Is a Home Warranty Plan?
Home warranties are superficially similar to manufacturers’ and extended warranties protecting less valuable items, such as automobiles and electronics.
Home Warranty Plan vs. Home Insurance
A home warranty plan is not a suitable substitute for homeowners’ insurance – or flood insurance, for that matter.
For starters, a home warranty won’t ease your mortgage lender’s concerns. If you finance your home’s purchase with a mortgage loan, as most owner-occupants do, you’ll almost certainly be required to purchase a homeowners’ insurance policy with coverages deemed adequate by your lender.
All homeowners’ insurance policies cover damages caused by certain defined perils, such as straight-line winds, hail, fire, burglary and other property crimes, and certain types of water damage. Many homeowners’ insurance policies also provide liability protection in the event of injury to policyholders’ guests or hired service providers.
Homeowners’ insurance generally doesn’t cover costs associated with appliance or home system failures unless those failures are the result of a named peril. For instance, if a violent thunderstorm sends a tree crashing through your kitchen, your home insurance policy may cover the cost of replacing any appliances damaged beyond repair, not to mention the windows and walls.
Like other types of insurance, homeowners’ insurance policies have deductibles. Policyholders are responsible for covering claim costs up to the deductible amount. Once the deductible is satisfied, the insurer pays the balance up to the claim or policy limit. Premiums and deductibles are inversely correlated; the lower the deductible, the higher the premium, all else being equal. Home warranties have deductibles too, but they’re usually lower than homeowners’ insurance deductibles, reducing plan holders’ out-of-pocket costs.
What Home Warranties Typically Cover
Home warranties don’t cover serious or catastrophic damage associated with named perils such as hail and fire. Rather, they provide partial compensation for repairs to and replacement of covered appliances that ail or fail due to certain covered causes.
Items covered by home warranties include:
- Home systems, such as electrical wiring and plumbing
- Mechanical appliances, such as furnaces and water heaters
- Major appliances, such as laundry machines and kitchen appliances
- Appurtenances not included in the categories above, such as pools and garage doors
Home warranty companies typically offer multiple plan tiers. Though their names may vary by provider, these tiers are typically:
- Platinum. This is the most comprehensive plan tier. It includes all common home systems and appliances, with excluded items available as add-ons in most cases. Coverage includes heating systems, cooling systems, electrical systems, plumbing systems and fixtures (including things like garbage disposal units), laundry equipment, major kitchen appliances, ductwork, and fans. Minor appliances, such as toaster ovens and microwave ovens, may not be covered.
- Gold. This plan tier may exclude certain services from categories covered by the highest-tier plans. For instance, a gold-level plan might cover faucet issues but not plumbing blockage remediation.
- Silver/Bronze. This plan tier typically offers limited coverage for major home systems, such as plumbing and electrical, focusing instead on major appliances.
- Basic/Systems. This plan tier covers major home systems only – usually some or all of the plumbing, electrical, heating, and cooling systems.
Some providers offer “build your own” plan options in addition to one or more basic plans. These mostly or fully customizable plans appeal to homeowners seeking coverages not typically included in lower-tier plans – for instance, coverage for major appliances plus one or two items covered only by high-priced plans, such as plumbing blockages.
Common Coverage Exclusions
At all plan levels, the devil is in the details. Before finalizing your plan, review the contract carefully for exclusions and limitations that may erode its value. The contracts I reviewed included a slew of exclusions, some more egregious than others. In no particular order, these were among the most noteworthy:
- Any damages attributable to defects that existed before the policy’s effective date
- Plumbing blockages caused by tree roots
- Plumbing issues more than 100 feet from the access point
- Septic tanks
- Water softeners
- Oven range hoods
- Oven failure that occurs during self-cleaning mode
- Solar water heaters
- Tankless water heaters
- Electrical system damage caused by flood, fire, or corrosion
- Electrical system and appliance damage caused by a power surge
- Attic fans
- Window and wall air conditioners
- Freon issues in any air conditioning system
- Humidifiers
- Crushed ductwork
- Ceiling fan lights
- Roof replacement
Home Warranty Premiums
Home warranty premiums vary by plan type, location, optional add-ons, and home-specific factors such as square footage.
I got quotes for my 1,400-square foot house from six providers operating in my area. I didn’t give them any details about my house, but I did have to give them my street address for each quote, so the providers presumably used publicly available information – such as my home’s age, bathroom and bedroom count, and heating system type – to produce accurate quotes.
My quotes ranged from a low of about $300 per year for basic/system plans to a high of about $750 per year for the highest-tier plans. Some providers offered lower premiums in exchange for higher service charges, usually on a 1-to-1 basis – meaning that raising the service charge by $25 per visit reduced premiums by $25 annually. Plans with monthly premium options offered substantial discounts for annual or multi-year plans – anywhere from 10% to 20%.
Some home warranty companies build cancellation fees into their plan contracts. These fees might range from $50 to $100, equivalent to a couple months’ premiums – not ruinous, but enough to give plan holders pause. Most home warranty plans have initial waiting periods, as well – usually 30 to 60 days from the start date – during which you may not make a claim.
Optional Policy Add-Ons
Common optional policy add-ons include:
- Pool and In-Ground Spa: $10 to $15 extra per month
- Guest Unit: $10 to $20 per month
- Septic Pump: $2 to $5 per month
- Well Water Pump: $10 to $20 per month
- Chest Freezer: $3 to $5 per month
- Central Vacuum: $3 to $5 per month
- Laundry Machines: $2 to $4 per month
- Lawn Sprinkler System: $5 to $10 per month
Some coverages included in higher-priced plans are available as add-ons in lower-priced plans; this commonly applies to laundry machines, for instance. So, opting for the higher-priced plan may be sensible if you know you’ll need those coverages anyway.
Home Warranty Costs vs. Out-of-Pocket Repair & Replacement Costs
As a general rule, home warranties make financial sense for older homes with aging appliances and systems. In newer homes with newer or better-maintained appliances and systems, they may cost more than they’re worth.
When assessing the relative cost of your home warranty plan, you’ll need to factor in your plan’s:
- Monthly or annual premium
- Built-in service charge, if any
- Deductible, if any
- Coverage limit for each covered service
- Exclusions that may result in denied claims
If your plan has a low or nonexistent deductible and high coverage limits, it could pay for itself after a single major appliance replacement. For instance, consider a plan with:
- A $500 annual premium
- A $75 service charge
- A $100 deductible
- A $2,000 coverage limit for water heater repairs
To replace a beyond-repair water heater under this plan, you’d spend $175 out of pocket and $500 on premiums. Assuming you make no other service calls that year, you’d spend a total of $675 during the contract period covering the water heater replacement. As long as the combined, uncovered cost of replacing the water heater is greater than $675, you’re in the black.
By the same token, a series of small repairs that barely exceed your plan’s deductible may not offset your combined premium and service charge costs. Before signing up for a home warranty, take stock of your home’s health and determine which systems and appliances are likely to fail shortly. If you’re not confident that there’s enough failure potential in your home to cover the cost of your warranty, you might want to pass.
Benefits of a Home Warranty Plan
Why get a home warranty plan? For benefits like these:
1. Less Effort to Find Service Providers & Schedule Service
While you should always do your due diligence on any home service provider, outsourcing provider selection to your home warranty company can certainly save time and effort.
2. Lower Out-of-Pocket Costs for Emergency Service
Aside from the per-visit service charge and plan deductible, if any, your home warranty plan may significantly reduce the out-of-pocket cost of emergency home service. Had our frigid surprise been covered by a home warranty plan, we would have saved hundreds on the cost of our thermostat replacement.
3. Fewer (and Lower) Unexpected Homeownership Costs
Though there’s no guarantee your home warranty company will accept any given claim, the combination of known coverage for specific appliances and systems and lower out-of-pocket costs for repairs and replacements adds up to fewer unexpected homeownership costs.
4. Peace of Mind for New or Non-Handy Homeowners
Even when home warranties fail to pay for themselves, their non-financial benefits might win out. That’s particularly true for inexperienced or decidedly not-handy homeowners, for whom all but the most straightforward DIY repairs are off the table.
5. Cost-Effective for Expensive, Off-Warranty Appliances
Home warranty plans really shine when used to cover the repair and replacement of expensive appliances not covered by manufacturers’ or extended warranties. In the example above, our hypothetical homeowner paid $175 out of pocket to replace a water heater, plus $500 in premiums that year. With equipment and installation costs topping $1,000 for even low-end tank models, that’s a good deal.
6. Effective Enticement for Sellers
A paid-up home warranty plan is an attractive, relatively low-cost enticement for homebuyers, particularly in buyer’s markets. Think of it as a seller-paid closing cost that could make the difference between a quick sale and a lengthy stint on the market.
7. Competition Benefits the Consumer
The home warranty industry abounds with sign-up deals and discounts. Haggling over premiums and service fees is acceptable too. In short, if you don’t want to pay sticker price for a home warranty plan, you probably won’t have to.
Drawbacks of a Home Warranty Plan
Consider these potential drawbacks before purchasing a home warranty plan:
1. May Be Inadequate for Older or Poorly Maintained Homes
Most home warranty plans have per-visit coverage limits. Many have lifetime coverage limits as well. For older or poorly maintained homes, both could come into play.
2. Depreciation May Water Down Replacement Value
Your home warranty company may factor depreciation into replacement value calculations, forcing you to pay some replacement costs out of pocket.
For instance, if your old furnace’s depreciated value is $800, and the same model costs $1,400 new, you’ll need to pay $600 out of pocket for an equivalent replacement or accept a cheaper alternative. When depreciation is substantial, repair may make more sense financially – if the appliance isn’t beyond repair.
3. Policy Exclusions
Many home warranty plans exclude relatively common situations from coverage. Policies excluding tankless water heaters, plumbing blockages due to tree roots, humidifiers, and window and wall air conditioners are needlessly restrictive. Think twice about policies full of such exclusions.
4. Need for Meticulous, Documented Maintenance
Some home warranty plans’ maintenance requirements cost more than they’re likely to save. If you must spend $100 on maintenance per covered appliance, per year, savings of $200 or $300 on a single repair might not cut it.
5. Premiums Rise Quickly for More Comprehensive Plans
Want a comprehensive home warranty plan with fewer exclusions, lower or nonexistent deductibles, lower or nonexistent service fees, and coverage for more systems and appliances? Prepare to pay for it. High-tier plan premiums are typically double basic plan premiums, perhaps more.
6. Out-of-Pocket Payments at Time of Service
Home warranty plans don’t provide blanket protection from out-of-pocket home service charges. Indeed, most plans demand at least some out-of-pocket payments – such as per-visit service fees, deductibles, or depreciation allowances – in addition to monthly or annual premiums. It’s important for plan holders to factor these costs into their home maintenance budgets.
7. Upselling Is Unavoidable
Service providers have clear incentives to upsell customers on fancier appliance models, annual service plans, preventive maintenance, and other products or services not included in the initial call. Research your replacement options ahead of the call and stand firm in the face of upsells you know you don’t need. Be wary of entering into any recurring agreements that duplicate your home warranty coverages.
8. Coverage Is Redundant for Newer Appliances & Homes
Virtually all new appliances come with manufacturers’ warranties lasting anywhere from one to five years and sometimes longer. Purchases made with premium cash back cards and travel rewards credit cards typically include complimentary extended warranties lasting another one to three years. Newer appliances still covered by these warranties probably don’t need additional protection.
Likewise, new-construction homes generally come with homebuilder warranties that cover appliances and fixtures for up to 10 years.
9. Potentially Limited Service Provider Choice
Not all home warranty companies have extensive service provider networks in all 50 states. Before signing up for a home warranty plan, confirm that your area is well-served by partner providers.
10. Denied Claims Don’t Void the Service Fee
A denied home warranty claim probably doesn’t void the visit’s service fee, adding an unavoidable charge to what will either be a manageable or potentially ruinous bill.
11. Cancellation May Be Costly
Many home warranty plans build cancellation fees into their contracts. Typically, if you cancel after 30 days from your plan start date, you’re on the hook for a cancellation fee equal to one or two months’ premium. You may also be liable for any covered service costs incurred while your policy was active, potentially adding hundreds or thousands of dollars to the cost of cancellation.
How to Find a Reputable Provider & Get More Out of Your Plan
The home warranty space is extremely competitive – and, from consumers’ perspectives, not particularly transparent. Here’s what you can do to find a reputable home warranty provider and maximize your chosen plan’s value.
1. Don’t Solicit Free Quotes If You Don’t Like Sales Calls
Home warranty companies are pushy. If you don’t like fielding – or ignoring – sales calls and emails, don’t solicit free quotes from warranty providers’ websites. You can find premium and add-on costs for your home without completing the quote-generation process.
2. Look for Sign-Up Discounts & Free Months
The home warranty business is competitive. Many providers offer sign-up discounts (such as 10% off your first year’s premium) or free months (one to two is common). If you’re down to two functionally equivalent policies, why not go with the bigger discount?
3. Don’t Be Afraid to Negotiate
The home warranty business is a commodity industry, with homeowners in the driver’s seat – at least when it comes to choosing plans. Though virtually every provider lets applicants choose and activate new policies online without ever speaking to a live person, it doesn’t hurt to loop in a human sales rep to see if you can get a better-than-advertised deal.
Complete the free quote application, wait for a salesperson to call, and present them with a more attractive competitor offer. If they’re willing to budge on the premium or service visit fee, great; if not, move on to the next provider.
4. Check Warranty Company & Service Provider References
One of the nice things about a home warranty is the built-in network of service providers. You don’t have to spend hours researching and vetting providers; your home warranty company does that for you.
You should research and vet providers anyway, though, and you should do the same for warranty companies themselves. Follow these best practices:
- Use Reputable Review and Consumer Protection Resources. Use private resources (such as the Better Business Bureau (BBB) and Consumer Reports) and public resources (such as your state’s attorney general office and insurance commission) to research candidate companies. Avoid affiliate review sites that function as extensions of warranty companies’ marketing departments.
- Visit Warranty Company Websites. Don’t use affiliate links to sign up for home warranties without first checking the provider’s actual website. With more information than affiliate landing pages, home warranty companies’ websites make it easier to assess company quality and dependability. You’re still free to use affiliate links to complete your purchase, of course.
- Look for Warranty Companies With Extensive Service Provider Networks. As a general rule, national companies with broad, deep service provider networks are more dependable and easier to work with than smaller companies with narrow provider selection.
- Research Plan Service Providers. Review provider lists and look into individual providers to get a sense of the quality of service you can expect from your plan. If every service provider on a given warranty company’s list has a failing BBB grade and a sea of sketchy reviews, that’s a red flag.
5. Opt for “Build Your Own” Plans Where Appropriate
When constructed with care, “build your own” home warranty plans may be less expensive than tiered plans with inclusions you probably don’t need. The ideal “build your own” plan includes only those systems and appliances you expect to require service or replacement shortly.
6. Use Add-Ons Judiciously
Not all home warranty add-ons have equal value. Pools and spas are famously expensive to maintain; if you have one or both at your home, adding them to your plan could pay off. On the other hand, it might not be worth your while to add items that haven’t cost much to date, or that you don’t care about fixing – central vacuum, anyone?
7. Read the Fine Print Carefully
Read the fine print on your home warranty contract before committing. Look carefully for potential limitations, including:
- The waiting period before your warranty’s coverage kicks in (usually 30 to 60 days from sign-up)
- Coverage limits per service visit, appliance, year, and/or over the lifetime of the warranty
- Exclusions to appliance and system coverage
- Ongoing maintenance requirements and documentation
You’re free to attempt to negotiate specific items in your contract, but at the end of the day, you shouldn’t sign up for a plan with which you’re not comfortable.
8. Maintain Covered Systems & Appliances
While excessive maintenance requirements may be more trouble and cost than they’re worth, abiding by your warranty’s maintenance stipulations reduces the risk that your claims will be denied. Regularly maintained systems and appliances perform better, anyway, potentially reducing your long-term homeownership costs.
9. Don’t Accept Upsells You Don’t Need
Local service providers work with home warranty companies because they promise a steady supply of captive customers who need their appliances and home systems repaired or replaced, pronto. Such customers are ideal sales targets. After all, if you’re already committed to replacing your furnace or water heater, why not upgrade to a more powerful or efficient model?
Of course, your home warranty company won’t absorb the cost of such an upgrade; that’s on you. If you don’t want to pay far more out of pocket than you expect or can afford, you’ll need to resist service providers’ persistent attempts to convince you otherwise.
10. Cancel or Pare Back Unnecessary Coverage
Be quick to cancel or reduce home warranty coverage that isn’t paying for itself. At least once per year, review your home warranty’s costs – including premiums, service fees, and deductibles – against its savings. If the numbers don’t add up, downgrade to a cheaper plan or cancel before your next renewal date.
11. Document Interactions With Claims Adjusters
Document every claims-related interaction with your home warranty company’s claims team. Download a cheap call-recording app, such as Automatic Call Recorder, to record your calls with the team; just be sure to disclose when you’re recording a call since laws about this vary by state. Take “before” and “after” photos of any work performed under your home warranty. Keep copies of service receipts, claims forms, and any other claims-related paperwork, as well.
12. Escalate Claims Issues Aggressively
If you feel like your home warranty company’s claims team is giving you the runaround, escalate first and ask questions later. Should results fail to improve as you ascend the supervisory ladder, make it clear that you’re prepared to lodge complaints with your state’s attorney general, consumer protection office, and insurance commission – and then follow through. Leave negative reviews on the company’s BBB listing, as well as on lead-generating sites like Angie’s List and HomeAdvisor.
Final Word
After weighing the pros and cons, my wife and I ultimately decided against purchasing a home warranty plan.
We knew we had to do something to avoid a repeat of our thermostat disaster, though – not just the physical shock of returning home to a frigid house, but the unexpected fiscal shock of a predatory repair bill. We settled on a DIY solution: setting up a home maintenance fund to cover the various costs all homeowners eventually face.
Our home maintenance fund is an interest-bearing savings account with a popular online bank. We contribute a fixed dollar amount to it every month and draw down as necessary. Its balance is now higher than the expected cost of a new boiler – our home’s oldest mechanical appliance – if and when we have to replace it. (We almost certainly will; it’s older than we are.) In the meantime, we’ve made at least a half-dozen maintenance- or home improvement-related disbursements from the fund.
It’s no home warranty plan, but it’s a lot simpler to manage. If you don’t like the sound of a home warranty, feel free to follow in our footsteps.
Do you have a home warranty? Are you satisfied with its coverage?
