Is it worth buying a home warranty?

Home warranty

As someone reading this website, you already know I recently bought a house as discussed here. It was built in 2000 and when we obtained the home inspection there were some noted concerns. Mainly that the AC, furnace and water heater were as old as the home. So we opted for a home warranty to insure against unexpected $2000-3000 bills if one of these breaks in the first few years in our house.

What is a home warranty?

 A home warranty typically is purchased at the time of a home purchase. It provides a warranty on major appliances (think above mentioned furnace, air conditioner and water heater) along with plumbing and electrical work. This is quite valuable if the home purchased is old or there are old appliances. Like most insurances it is important to read the fine print. The costs of the home warranties, their deductibles, and items covered are quite variable. So when buying a home it is important to think why you may need it and find a plan that covers those needs. For instance, our warranty covers pre-existing or new electrical issues (incorrectly installed items or items that break), but not upgrades (changing one circuit to two separate circuit systems). The fine print is important!

For us, we decided it was important to purchase a warranty to cover the costs of the above big ticket items. So if the furnace breaks, the water heater breaks, or the AC unit breaks we will be covered. These items can cost between $500 to $3000 to replace depending on the brand and labor costs. That can be quite a bit of dinero that I am not willing to fork over.

So how does the home warranty work?

We pay an annual fee of $500 and then a $75 deductible for each work order. If the furnace breaks, we call our insurance company. They will then send a local service provider and all it costs us is $75. It does not matter if the work takes 5 minutes or 2 days, the cost to us is the same.

This is great if we consider that the total cost to replace all of our old furnaces, AC units, and water heater is likely $5500. Hypothetically, lets say say it takes 4 years for all of these items to break (though I suspect it will happen sooner). Then it costs us $2000 in annual fees plus $425 ($75 a visit) in deductibles for a total of $2425. Even if it takes 8 years for all of these appliances to break, we still break even. So in our case, I will be keeping the homeowners warranty in place until all of these major appliances break.

Another reason to buy a home warranty when purchasing a house is because you should always expect the unexpected. We have been in our home a little over three months and in that time we have used our home warranty to 1) Replace a suddenly broken garage door spring (he also replaced the non-broken spring), 2) fix a leaking toilet, 3) replace a broken pump on our clothing washer, and 4) we will be calling them for a broken ice maker. For the cost of $300 in deductible all of these items are fixed.

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Now that's a house!

When is it not a bad idea to buy a home warranty? 

1)    We did not get a home warranty when we purchased a newly built home. Everything was brand new and I am not someone who buys a warranty plan just to have it. I will never buy the TV, lawn mower, or iPhone protection plan. I figure the risk of a new item breaking is low and not worth the cost. The cost to me is more time doing DIY repairs (on a side note, avoid buying front loading clothes washers if possible. The seal on the door tends to mold and can crack/tear too!).

2)    If the cost of having the warranty is more than the expected return on repairs. Once our major appliances are replaced, I will get rid of the home warranty. This may be two years or five years from now. Keeping the warranty for the small ticket items does not make sense to me. I can fix most things that break in our home.

So is a home warranty worth it?

I think so if you have an older home with big cost appliances that are close to their end dates. For me the sweet spot is < 5 year and multiple items. If we had only one item that needed updating then I would not have purchased the warranty for more than one year. Also, in that first year a lot of things pop-up unexpectedly. You never know how the last owners maintained the home.

Do you have a home warranty? If so, how have you used it?  

Updated 8/31/17: I recently received a renewal notice for the home warranty. The price was $700, so we decided to not renew our warranty. It may cost us a few grand once our hot water heater, air conditioners, and furnace break, but I can't justify paying the money for the potentiality in a few years. 

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