1

What a home warranty is

A home warranty is a service contract. You pay a yearly premium, and when a covered appliance or system breaks from normal wear and tear, the warranty company sends a contractor from its network. You pay a service fee for each visit, and the company pays for the covered repair, or for a replacement if it decides the repair isn’t worth it, up to the plan’s limits.It isn’t homeowners insurance, which covers sudden damage like fire, storms, and burst pipes rather than things wearing out. It isn’t required for a mortgage. And it isn’t the manufacturer’s warranty on a new appliance, which is free and may still be running on the newer things in your house.

2

What it costs

Plans typically run $600–$900 a year, plus a service fee of $65–$150 every time a technician comes out. Pools, septic systems, and well pumps usually cost extra. Over 5 years with 2 claims a year, that comes to $3,650–$6,000.A warranty company is a business: across all of its customers, it pays out less in repairs than it collects in premiums and fees. For the average household, that gap is what the plan costs.

3

Where the fine print bites

Pre-existing conditions

Problems that started before coverage are excluded, and the company’s technician decides what counts as already there.

Maintenance requirements

A claim can be denied if you can’t show the system was maintained: the furnace serviced, the water heater flushed, the filters changed.

Coverage caps

Plans limit what they pay per item or per year, and a cap can fall well short of replacing a major system.

Their contractor, their schedule

You usually can’t choose who comes out, and a replacement may be the cheapest unit that fits.

Code upgrades and access

Bringing old work up to code, or opening a wall or ceiling to reach the problem, is often excluded.

4

Run the numbers on your house

The systems that make a warranty tempting are the expensive ones. Say your heating and cooling system and your water heater are both inside their typical replacement windows, 15–20 years and 8–12 years. Replacing them runs about $7,000–$16,000 installed and $1,200–$3,500 installed.A warranty looks like cheap protection against that. But a coverage cap, a pre-existing-condition ruling, or a cheapest-unit replacement can shrink what it actually pays, and the premiums keep coming whether anything breaks or not. The $3,650–$6,000 those 5 years cost would, sitting in a repair fund, cover most or all of the water heater and a real share of the heating and cooling system.

5

When a warranty can make sense

The seller is paying for it

A first-year warranty from the seller costs you only the service fees. Take it, register it, and read what it covers.

Several old systems and no cushion

If more than one major system or appliance is near the end of its life and a surprise repair would go on a credit card, the premium can buy time while you build a fund.

You own a house you don’t live in

For a rental or a second home, one number to call for repairs can be worth the premium.

You want predictable bills

Paying extra for a steady monthly cost is a legitimate choice, as long as it’s a deliberate one.

6

If you buy one anyway

1. Read the sample contract, not the brochure: the caps, the exclusions, and how it defines pre-existing.
2. Keep your maintenance records and receipts. They’re your answer when a claim gets questioned.
3. Know the service fee and how to file a claim, and file as soon as something breaks.
4. Check the company’s complaint history with your state and the Better Business Bureau.
5. Put the renewal date on your calendar and decide each year whether to keep it.

7

Or pay the premium to yourself

The alternative is to pay the premium to yourself. Move the same monthly amount into a separate savings account and let it build. The money covers the next repair with no service fee, no claims process, and no contractor you didn’t choose, and whatever you don’t spend stays yours.Better still, size the fund from the ages of the systems you actually have, so it grows fastest for whatever is closest to failing.How much to save for home repairs walks through sizing the fund system by system.