Is Adding A Home Warranty To Your Homeowners Insurance Worth It?

You sign the papers, hand over that down payment you've saved up and finally receive the keys to your new home. Now you can relax and enjoy homeownership.

But two months later your air conditioner dies, and it'll cost thousands to fix. Should you have purchased a home warranty?

What is a Home Warranty?

Not to be confused with homeowners insurance, which your mortgage lender will likely require you to purchase, a home warranty is an optional one-year contract with a provider to repair or replace major household systems and appliances that fail due to normal wear and tear.

Unlike an insurance policy, which covers damages from catastrophes such as fire, theft or storm damage, a home warranty protects your budget against unexpected failures of home systems or equipment that insurance carriers don't cover.

"For example, if your dishwasher leaks and water damages the floor, your homeowner's insurance may cover the damage to the floor, but not the repair or replacement of the dishwasher," explains Gloria First Caplinger, a senior account executive with Old Republic Home Protection, a company providing home service contracts. "With a home warranty, your dishwasher is covered."

While every provider's coverage is different, some of the items typically covered by a standard home warranty are interior plumbing, heating and electrical systems, water heaters, ovens/ranges, garbage disposals and built-in microwaves.

Additionally, refrigerators, air conditioning, septic systems, washers and dryers, and pool and spa equipment may be included in optional or upgraded plans. The National Home Service Contract Association (NHSCA) has a comprehensive list of what home warranties cover.

What Does a Home Warranty Cost?

Typically, a basic home service contract ranges from around $350 to $500 per year, but can go up to $600 for more comprehensive plans, according to Angie's List.

In addition to the cost of the plan, you'll also be required to pay a service fee for each appointment with a repair technician. This fee can range from $30 to $100 depending on where you live, according to NHSCA.

Is It Worth the Money?

Staci Nauman, a Realtor with Keller Williams Realty Sparks, a real estate agency in Sparks, Nevada, says that in most cases, she suggests homebuyers purchase at least a basic warranty plan.

"I recommend at least doing it for the first year," Nauman says. "You can do all the inspections you want, test everything, but until you're actually living in the home, you don't know what its quirks are. And whether it's a new construction or not, they all have them."

"And after 10 years, things start breaking in a home; that's the natural life cycle," adds Nauman. The International Association of Certified Home Inspectors has a breakdown of the average life expectancy of most home appliances and systems.

Nauman's own recent personal experience showed her the value of a home warranty firsthand.

"I wish I'd had coverage when my built-in microwave went out," she recounts. "Only two manufacturers made that size microwave, and each of them only made one model that fit, so we only had two choices for what we could put in. It cost us $900 for a microwave!"

But keep in mind if you're buying all new appliances for your home, they'll likely be covered by their own warranty for the first year. The same is true for new builds, which may have coverage from the manufacturer's or builder's warranty.

And despite many homeowners finding value in a home warranty, many are also dissatisfied with either the coverage provided or by interactions with the companies themselves. Home warranty companies were the most complained-about category on Angie's List 10 years in a row. And Consumer Reports notes that hundreds of customers have complained about home warranty companies to the Better Business Bureau.

You should carefully read your home warranty contract to know what's covered. Certain types of repairs may not be included, which can take homeowners by surprise.

You'll also have limited options on which repair technician you can choose, which can be frustrating to some homeowners. Home warranty companies have a list of approved contractors and choosing one from outside that list may mean your repair isn't covered.

How Much Coverage Should You Buy?

If you do decide to go with a home warranty, how much coverage you need will depend on your home and appliances. This is where it pays to talk to your home inspector about what aspects of your new home may soon need work.

"I tend to recommend the middle package, [a slight upgrade from the basic]," Nauman says. "The biggest advantage is adding air conditioning, which can be $4,000 or $5,000 if it goes out. It also covers code upgrades, hauling away materials, that kind of thing."

But after that first year in your home, should you renew? Again, that's a personal decision you should make based on your own knowledge of your home.

You may decide it's worth it to spend a few hundred dollars now for convenience and peace of mind. Or, alternatively, you might decide to put aside some money in an emergency fund in case of unexpected repairs.

"Is the A/C rattling? Is the dishwasher giving you fits? You have to make that decision yourself," Nauman says. "It's not a black-and-white thing; it comes down to your own situation. But just like insurance, [a warranty] can be a pain, but the minute you need it, you're glad you've got it."

Jessica Santina is a freelance writer, editor and college writing instructor in the Reno, Nevada, area who contributes regularly to MoneyGeek.com. Her work has appeared in numerous books, regional and local publications, websites and blogs.

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