Are Home Warranties Worth It?

Do you feel like you’ve ever been swindled? Been duped into spending your hard-earning dollars on snake oil? That’s how I feel about my home warranty. And apparently I’m not the only one.

What exactly is a home warranty? I wasn’t completely sure when I accepted the one year plan that was included with the purchase of my house.

A home warranty is a service contract that promises to repair or replace certain appliances and systems, as long as it meets the terms and conditions of the agreement.

The L.A. Times recently published the revealing story, Are home warranties worth the cost?

According to Consumers’ Checkbook, homeowners would be better off diverting the funds (typically $400-600 per year in premiums) into a home repair fund. They argue that “buying a home warranty is like buying a (very) limited extended service contract on a bunch of appliances.”

Additionally, many of the most expensive repairs may not be covered. Examples include roofs, leaking windows, basement moisture, chimneys, structural components, ice makers, and plumbing backups caused by tree roots. Ouch.

On top of sketchy coverage, service call fees range from $75-100 and you have no control over the repair person who is sent to fix the problem. Hmmmm.

Another recent article, Angie’s List: Are Home Warranties Worth It?, from CBS Pittsburgh tapped the popular review website for advice on how to navigate the tricky landscape of home warranties.

The company reveals that “for ten years in a row, home warranty companies have been the worst-graded category on Angie’s List.” But the dissatisfaction typically occurs when homeowners have failed to educate themselves about what is and isn’t covered under their plan.

What’s the deal with my home warranty?

Cost

1st year – paid for by previous homeowner
2nd year – $46.08/month
3rd year – $46.08/month
4th year – $52.00/month

Plus, $75 per service call.

I recently received a renewal notice stating that the premium is increasing to $55.00/month at the end of June.

Coverage

My coverage contract pamphlet includes plumbing, plumbing stoppages, water heater, electrical, kitchen appliances, central vacuum system, attic and exhaust fans, ceiling fans, central air conditioning (ducted), ductwork, heating, kitchen refrigerator, and smoke detectors.

Examples of items not covered within these categories: stoppages caused by roots, holding or storage tanks for water heater, solar equipment, door bells, intercoms, alarms, insulation, ductwork where asbestos is present, fireplaces, chimneys, ice crushers and beverage dispensers from the refrigerator. Pre-existing conditions are not covered.

Note: Every company offers a unique plan.

Is It Worth It For Me?

I was lucky to move into a newly renovated home with several brand new appliances. I’ve paid a total of $1,729.92 over the past three years in premiums and have never made a claim. Would I have been better off if I placed that money into an emergency fund? Maybe.

Last year when I was attempting to shave down my monthly expenses, I called my home warranty provider and attempted to cancel my policy. I was connected with a customer service representative who convinced me to keep my plan by sharing a story about a former customer who cancelled her plan and then had to pay thousands of dollars in repairs when her hot water heater died shortly thereafter. Sigh.

I have until the end of the week until my plan automatically renews and I’m heavily leaning towards cancelling the policy. $55 per month just doesn’t feel worth it to me.

Is this the right move for everyone? Absolutely not. I would highly recommend for another homeowner to thoroughly review their policy (especially the fine print), learn what is covered, what isn’t covered, and consider the condition of these items in their home. It’s also important to intimately understand what your homeowners insurance covers.

Readers: Do you have a home warranty? Has it been worth it?

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Discussions — 36 Responses

  • Natalie @ Financegirl June 23, 2014 on 11:54 am

    Okay, I have nothing of substance to add here, so sorry about that. But I do appreciate learning about these things before I own a home, so I’m looking forward to seeing what people say. It seems like a close call. Personally, I’m risk averse, so I would probably be tempted to keep it (although that’s based on zero experience here, so who knows). Good luck and let us know what you decide!

    Reply
    • Addison Cash Natalie @ Financegirl June 27, 2014 on 7:36 pm

      Thanks for your input, Natalie! I was overinsured on a variety of things for years, but I’m trying to be a bit more economical now.

      Reply
  • Mrs. 1500 June 23, 2014 on 1:32 pm

    The 1500’s are of the opinion that Home Warranties, along with extended service plans of any type, are not worth the paper they are written on. They sound nice when you are selling your home, and it is always nice to have when you buy one, but Murphy’s Law rules over them and they will almost NEVER cover whatever it is that breaks. And like you said, there is a service fee with every call and you have no control over who arrives to fix the issue.

    Your post states you spent $1700+ and have never filed a claim. I think most people who have this “insurance” product will have the same story. And for those who did file a claim, many claims are denied, or only partially covered. I am in the better-off-to-save-that-money-in-an-emergency-account camp.

    As for that story customer service told you, A 40-gallon water heater starts at $367 at Home Depot. Are Home Warranties worth it? In my opinion, a resounding “NO!”

    Reply
    • Addison Cash Mrs. 1500 June 27, 2014 on 7:38 pm

      I appreciate the feedback, Mrs. 1500. Thanks so much for sharing!

      Reply
  • Tonya@Budget and the Beach June 23, 2014 on 1:40 pm

    Wow I have never ever heard of this before! It’s hard for me to say since I’ve never owned a home, but I would probably lean towards saving up myself for something that might come up. It’s sort of the same way I feel about pet insurance. I might be paying a premium for something that might not ever happen, and when it does happen, will it be covered anyway. I’d rather have as much money in an efund if and when it occurs, but if not I get to keep that money.

    Reply
    • Addison Cash Tonya@Budget and the Beach June 27, 2014 on 7:39 pm

      Great points, Tonya! I hate that I’ve already spent over $1,700 and have never made a claim.

      Reply
  • debt debs June 23, 2014 on 2:01 pm

    I put these in the category of mortgage insurance. You can get term insurance for as cheap and it would cover more than your mortgage, so no, and no to the home warranty. Home insurance you must have, of course. How’s your e-fund looking? I agree with your plan to put the money towards e-fund instead and deep six your home warranty.

    Reply
    • Addison Cash debt debs June 27, 2014 on 7:39 pm

      Agreed! Thanks for the feedback.

      Reply
  • Mr. Frugalwoods June 23, 2014 on 2:46 pm

    These sorts of things only, possibly, maybe, sorta make sense for people with no emergency fund.

    If you can cover a $500 water heater replacement from your emergency fund then there’s no way you should pay for a warranty.

    Plus in practice they are very hard to collect on. There is so much fine print, and they’ll hold you to it!

    Reply
    • Addison Cash Mr. Frugalwoods June 27, 2014 on 7:41 pm

      That fine print really is the killer! I’m not hearing many examples of when a home warranty has been worth it.

      Reply
  • Wade June 23, 2014 on 5:58 pm

    If you have your emergency fund in place, then your hot water heater going out isn’t an emergency. Having $ saved moves most common things in to the “no big deal” bucket. Sure paying $1,000 for a hot water heater stinks, but paying for it rather than plopping it on your credit card sure does feel good. I’d say dump the home warranty. You are self-insured.

    Reply
    • Addison Cash Wade June 27, 2014 on 7:42 pm

      Great point! I hate unexpected big expenses, but that is absolutely what an emergency fund is for.

      Reply
  • Kassandra June 23, 2014 on 6:22 pm

    As others have already voiced, I am of the position that if you have an E-Fund or a decent savings fund for repairs then it’s not worth it to pay for a home warranty of any sort. It’s no different than raising the car insurance deductible from $250 to $1K in order to save on the insurance premium rates. We all don’t like to see hundreds fly out of our E-Fund from time to time but that is the purpose of savings.

    Reply
    • Addison Cash Kassandra June 27, 2014 on 7:43 pm

      I raised my deductibles for my health, car, and homeowner’s insurance for this very reason! Thanks for your feedback.

      Reply
  • Brian @ Luke1428 June 23, 2014 on 7:16 pm

    We don’t have a home warranty plan. Our repairs come from our emergency savings that we’ve built over the years.

    Also I can almost assure you that “story” from the customer service rep was a script. I’m not saying emergencies never happen, but they simply want your money. They’ll do anything to keep you renewed including creating a little fear to get you to stick.

    Reply
    • Addison Cash Brian @ Luke1428 June 27, 2014 on 7:44 pm

      You are so right about the sob story from the customer service department :(

      Reply
  • Derek @ MoneyAhoy.com June 23, 2014 on 7:26 pm

    Cancel that shit!!!!

    I’ve had two different home warranties and they are horrible if you ever go to make a claim. They force you to use a “certified” vendor, and in many cases will only pay for the parts, not the labor. I had a new water heater installed and ended up owing roughly $400. I could have done the job myself more quickly for the same or less.

    Other problems we’ve had with our fridge simply weren’t covered under their plan. After 3 hours of arguing over the phone I finally gave up.

    Take the money and use it for an emergency fund. Trust me, you will come out ahead in the long run!

    Reply
    • Addison Cash Derek @ MoneyAhoy.com June 27, 2014 on 7:44 pm

      Ugh, sorry you had to go through that Derek! What a hassle!

      Reply
  • Michelle June 23, 2014 on 7:32 pm

    We had a home warranty when we first bought our home, but we let it expire after the first year was over. The sellers paid for the first year, and nothing major has broken yet so I’m glad we never continued to pay for it.

    Reply
    • Addison Cash Michelle June 27, 2014 on 7:45 pm

      Thanks for sharing, Michelle. I wish I had done the same!

      Reply
  • Bee @ The Budgets and the Bees June 24, 2014 on 12:53 am

    I would cancel and put it in an emergency fund. You’re covered if something happens, and if it doesn’t – you still have money! You keeping your money is way cooler than the home warranty guys keeping your money.

    Reply
    • Addison Cash Bee @ The Budgets and the Bees June 27, 2014 on 7:49 pm

      Keeping my money is WAYYYYY cooler than giving it to someone else. :)

      Reply
  • Holly@ClubThrifty June 24, 2014 on 12:29 pm

    We had a home warranty on our first home (it was included in the purchase price), and it was not worth it at all. We had to replace the garbage disposal and it was “covered” but we had a $100 deductible and had to use their “approved” service providers. I think it cost us more to use the warranty than it would’ve cost without it. We were young and dumb at the time.

    Reply
    • Derek @ MoneyAhoy.com Holly@ClubThrifty June 26, 2014 on 8:50 pm

      Exactly! These things are really a waste of money.

      Reply
    • Addison Cash Holly@ClubThrifty June 27, 2014 on 7:48 pm

      Ugh, what an annoying experience, Holly! Thanks for sharing.

      Reply
  • Andrew@LivingRichCheaply June 24, 2014 on 7:22 pm

    I hadn’t heard of a home warranty until my co-worker mentioned it recently after her dishwasher broke. She said that she should have listened to her friend and gotten a home warranty. I did not know it costs that much in premiums. While I’m not a homeowner and don’t have much experience, I think Mrs. 1500 has some good points. Might have been better off with $1700 in an emergency fund. I’m usually not a fan of extended warranties.

    Reply
    • Addison Cash Andrew@LivingRichCheaply June 27, 2014 on 7:47 pm

      Thanks for sharing, Andrew. It’s interesting that NO ONE seems to be in favor of them.

      Reply
  • Laurie @thefrugalfarmer June 26, 2014 on 12:20 pm

    I’ve always been told that warranties in general are not worth the purchase. Not sure if that’s necessarily true or not, especially with the purchase of an older home with older appliances. I’d have to think about that one a bit.

    Reply
    • Addison Cash Laurie @thefrugalfarmer June 27, 2014 on 7:46 pm

      That’s probably a good rule of thumb, Laurie. I can’t think of a time that I’ve purchased a warranty for anything else!

      Reply
  • Kemkem June 27, 2014 on 6:55 am

    They are completely useless. I suggest you cancel it and save your money. I have a funny story about that. I had purchased a house in L.A and got a home warranty. I won’t mention the name. The house came with a SubZero fridge, ridiculously expensive, but older. The freezer part broke down..calls, come outs etc. eventually, l was told it wouldn’t be covered due to some silly excuse . My partner at work said just forget it. I made a bet with him that l would get my money back. I researched for like 3 months online and through county records to find out the people behind the company. Amazing what a rabbit hole it was, no names..always one company leading to another etc.. I eventually found the name of the C.E.O through their filings. I filed a small claims court case suing him for the amount of a new subzero fridge. On the day of the court case, l showed up..and when the judge called our names, there was a rep instead of the guy. She said they had been attempting to contact me (lie). Anyway, she hands me a cashier’s check for the amount l sued for and gave me her office number in case l had any more problems. I bought a new fridge, not subzero and l took everyone at work out for dinner with the difference. Always go for the kill!

    Reply
    • Addison Cash Kemkem June 27, 2014 on 7:46 pm

      Woah, what a crazy story! Thanks for sharing.

      Reply
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  • Frank Covert January 13, 2015 on 8:48 pm

    In some cases, I guess it they are worth it if the plans are great.

    Reply
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