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By: AgFed Credit Union

Welcome to AgFed Credit Union's MoneyDig blog! 

Get confident about your personal finances with a number of articles, tips, advice and more.


Should You Purchase a Home Warranty?

 Nov 18, 2022
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Buying a home may be one of the most significant financial investments you’ll make during your lifetime. Given that your home plays such an essential role in your life, you’ll want to ensure it’s protected as much as possible.

When thinking about home protection, most people turn to a homeowner’s insurance plan. Homeowner’s insurance is vital as it covers your home in the event of a theft, fire, water damage, and much more. However, what happens if major household items like your appliances or HVAC break down? Unfortunately, homeowner’s insurance doesn’t typically cover those matters. That’s where a home warranty comes into play.


What is a Home Warranty?

A home warranty is an optional coverage that protects specific items within your home should they have issues or break down. The most common areas people choose to cover are major appliances, such as your oven, refrigerator, washing machine, and heating and air conditioning system.

While there are a multitude of providers that offer home warranties, most plans fall into two groups. You can either choose which appliances you want covered, or you pick a pre-packaged plan that offers differing levels of protection.


How Does a Home Warranty Work?

Many companies offer home warranties, and their coverage and costs may differ somewhat. However, they generally work in the same manner. If an appliance protected under your plan has an issue or breaks, the home warranty provider will either cover its repairs or seek a comparable replacement.


Benefits of a Home Warranty:

While a home warranty does cost money, the benefits can easily outweigh the price. Here are a few of the most common ways a home warranty can help you:

  • Peace of Mind: A home warranty assures you that if an appliance or home system breaks or needs repair, you won’t be burdened with substantial out-of-pocket expenses.


  • Limited Involvement: When an issue arises, the home warranty provider will send a technician to review the problem. They will determine if the item can be repaired or needs to be replaced. This turnkey approach limits the amount of work you need to do on your end – saving you valuable time and effort.


  • Economical: Home appliances aren’t cheap today. If your appliances are older but well-maintained, a home warranty is a great way to extend their life or get a replacement at a much lower cost.

In addition, most home warranties come with "flat-rate fixes." This means that you will only pay a flat rate regardless of how severe or costly the repair is - which could save you a significant amount of money. 


Drawbacks of a Home Warranty:

While home warranties provide a valuable service, there are things you should consider before deciding whether one is right for you.

  • Limited Say: If you must replace an appliance, you often have little say in the replacement model, brand, and color. Usually, the home warranty will replace the covered item with something comparable to the original.


  • Expectation Discrepancies: Most home warranties state that the covered item must be well-maintained to be covered for a repair or replacement. However, the warranty provider’s definition of "well-maintained" may differ from yours. In other words, if something breaks, they could argue that the appliance wasn’t well-maintained to begin with, and as a result, you don’t qualify for compensation. Therefore, it’s always best to clearly define this before agreeing to a home warranty so there are no surprises later.


  • Coverage Limitations: You may think that if you get a home warranty on top of your homeowner’s insurance, you’ll be completely covered no matter what happens. Unfortunately, that’s not the case. Similar to most homeowner’s insurance, home warranties won’t cover damage from floods or other acts of nature.


  • Pricing: Most home warranty plans are not very expensive. However, if you end up not using the plan, you’re just throwing away money. Depending on your plan’s cost, the home’s age, and the condition of your appliances, it may make more sense to put that money monthly into an emergency fund for future home repairs.


Great for Homebuyers

When buying a new home, there are many upfront expenses you need to pay, such as your down payment and closing costs. A home purchase can be costly when you add moving expenses and redecorating costs. That said, the last thing you want is to replace the refrigerator or oven a few months after taking ownership.

Purchasing a home warranty is an ideal way to avoid unplanned expenses during your new house’s first year. Many home sellers will add a one-year home warranty when selling their property specifically to ease potential buyers’ financial fears. Then, after one year, the new homeowners will have the opportunity to extend the policy themselves.

If you’re buying a home, consider asking the seller to include this protection as part of the sale. Or, if you’re a seller, you might offer a one-year home warranty as a way to make your home more enticing to potential buyers.


We’re Here to Help!

There is a lot to consider when purchasing a new home, including protecting your investment. If you have questions about the home-buying process or are interested in opening a savings account to cover future home repairs, we’re here to help.

Your Turn

Have you purchased a home warranty? Tell us about it in the comments!

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