Are Home Warranty Plans Worth It?
Homeownership comes with many extra expenses, from mortgage payments to out-of-pocket costs for maintenance and repairs. Amidst this, homeowners are introduced to the concept of home warranty coverage to help with unexpected repair costs incurred outside the scope of home insurance.
A home warranty is a good idea for most homeowners — yes, we're going to come out and say it — but performing a cost-benefit analysis is an important step to validate the necessity for your property. That's because many homeowners have a hard time understanding what these warranties cover and whether they truly offer value for the cost.
Our own experiences have led us to realize that it can be hard to trust whether essential home systems or kitchen appliances of a new home will work as expected. But taking the time to gain a deeper understanding of the benefits and limitations of both homeowners insurance and home warranties makes it easier to break it all down.
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Home Warranties vs. Home Insurance
A 2024 study by the Consumer Federation of America noted that 12 in 13 homeowners in America have homeowners’ insurance, but only 4% of homeowners currently have a home warranty.
"While homeowners insurance covers the structure of your home itself from catastrophic events like storm damage or fire, including some items inside, it may not cover everyday wear and tear on your electrical, plumbing, heating systems, and appliances," notes Evan Iverson, Chief Operations Officer at Frontdoor, Inc. "Home service warranties cover the repair or replacement of essential appliances and systems due to normal wear and tear."
He elaborates, understanding that many homeowners (especially potential buyers and first-time homebuyers) struggle to calculate whether home warranty costs are worthwhile. “Home service warranty protection is especially well suited for budget-conscious households that want to avoid a financial hit when met with unexpected home repairs," says Iverson. "Maintaining and repairing a home can include unforeseen expenses, but with a home service warranty, homeowners can guard against the cost of inevitable, unplanned appliance breakdowns, or make up for lack of maintenance on major systems like HVAC, electrical and plumbing, and other kinds of repairs. It’s just a matter of time before something breaks, potentially costing thousands of dollars in some cases.”
American Home Shield also shares that homeowners were 25 times more likely to use their home warranties than they were homeowners’ insurance. "Even the best home systems and appliances will inevitably break down, it’s simply a matter of when. And when breakdowns happen, it’s expensive: a single repair can cost thousands," reminds Iverson.
Photo by Aubrey Odom on Unsplash
A Cost-Benefit Analysis
If you're considering a home warranty policy, compare the fees and the potential benefits. Keep in mind that the cost of the warranty includes the initial payment for coverage as well as any additional service fees or warranty premiums that may apply with each use.
The benefits of a home warranty contract typically include:
Peace of Mind: Homeowners rest at ease knowing that certain common repairs and replacements costs are covered.
Budget Control: Outlines upfront repair costs, easing any financial burden.
Financial Protection: Save your emergency funds for another day. Home warranty providers help you manage unexpected expenses when you encounter big-ticket repairs and extra costs.
Convenience: A service contract can simplify the process of finding a qualified repair company and coordinating maintenance.
Added Home Value: Can enhance the resale value of the home, as some buyers appreciate the reassurance of a home warranty.
To conduct a cost-benefit analysis, homeowners should consider factors such as the age and condition of their major home systems and appliances, whether or not those systems still have builder warranties (or manufacturer warranties), the likelihood of needing major repairs or replacements, and the estimated cost of these repairs. They should also compare the cost of the warranty to potential savings, even on regular maintenance and future repairs.
“A good example would be replacing a hot water heater," notes Iverson. "Depending on where you live, the average cost of replacing one is usually in the range of $1,200 to $2,000, or more. On the other hand, having a home service warranty protects you against something like this. [Some protection plans] cost less than a dollar a day, making it a great way to guard against major expenses due to appliance or system breakdowns.”
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For homeowners living under the assumption that their homeowners insurance policies will be enough to protect them in case of a system breakdown, think again. Another way to gauge value of a home warranty service contract is to ask your homeowners insurance whether or not a valid claim would cover any of the following repairs, and what the deductible would be:
Water Heater Breakdown
Garage Door Opener Malfunction: Coverage for repair or replacement of garage door openers.
Roof Leaks: Many offer roof leak protection, but you might be surprised to learn what qualifies as peril.
HVAC System Malfunction: Repair or replacement costs for heating, ventilation, and air conditioning systems.
Plumbing System, Septic Pump, or Sump Pump Issues
Electrical System Problems
Appliance Failures: Coverage for repair or replacement of major appliances like refrigerators, ovens, garbage disposals, and dishwashers.
Ceiling Fan Issues
Pool and Spa Equipment: Assistance with repair or replacement of pool pumps and heaters.
When you weigh home warranties and home insurance side-by-side, it might become easier to validate the additional cost in return for extra coverage.
Related: Does Homeowners Insurance Protect Against Damage Caused By Your Electric Car?
Should you consider a home warranty?
“It’s definitely something to think about," agrees Iverson, as he encourages homeowners to make an informed decision. "Again, the annual cost of a home service warranty can be beneficial to any homeowner, especially those on a budget or people who own a home with older appliances or an older heating and air conditioning system. But even owners of new homes often report problems within the first 90 days, so we can help them too. With our home service warranties, you also get additional benefits like access to a new HVAC system at a big discount" He goes on to explain that American Home Shield, the home warranty service company under the Frontdoor umbrella, provides coverage no matter how old your appliances and systems are.
Frontdoor also launched a new HVAC program that provides exclusive pricing on new, name-brand HVAC systems for American Home Shield members and Frontdoor app users. “The average HVAC system lasts approximately 15 years, so if your system is approaching that timeframe, or if you simply want a better and more efficient system, now is an excellent time to upgrade,” Iverson said. “[Plus], new systems can lower your energy costs by up to 35% annually. You can also enjoy a quieter system and better air circulation in your home,” he added.
