3 Reasons Home Warranties May Not Be Worth the Money

Don't end up wasting money on a warranty that doesn't provide the expected protection.

Homeownership comes with lots of expenses beyond your mortgage payment. If something goes wrong with the property, you'll be responsible for paying for it -- not your landlord. As a result of fears about repair expenses, some homeowners are interested in purchasing a warranty.

Home warranties aren't to be confused with the warranties that builders provide when a new home is purchased, nor are they to be confused with homeowners insurance. They typically provide coverage, offered by a third-party warranty provider, that is supposed to cover many of the major systems in the home.

Unfortunately, they are often not worth the money you pay for them. Here are three big reasons why.

1. You may already have coverage without paying for it

Often, many of the items in a home come with a warranty from the manufacturer -- especially the most expensive items.

For example, appliances usually come with at least a one-year guarantee. And if you pay for them with a credit card, then you may be able to get protection for longer if your card offers an extended warranty. HVAC components, such as a furnace, may even come with a warranty that lasts multiple years.

If you have a newer home and you already have a manufacturer warranty for most of the expensive items in your home, paying for additional coverage from a third-party provider wouldn't make sense.

2. You may face high service or diagnostic fees

Many home warranty companies charge you a fee of $50 or more just to come out and check out whether you have a covered problem. This fee may be owed even if it turns out the warranty doesn't provide coverage for the issue.

By the time you pay this service fee, you could end up with out-of-pocket expenses that are higher than you'd have paid an independent repair person. Or you could be out the money if it turns out you have no coverage at all and have to call a repair person anyway.

3. The coverage may not be as comprehensive as it seems

Home warranties also typically come with many limitations. For example, there may be exclusions for entire parts of your home, such as swimming pool equipment or the garage. Or they may exclude some common problems that arise or fail to cover specific components of covered systems, such as the hot water heater tank even if the water heater is theoretically covered.

Warranties also may promise "replacement" coverage if an item that's included in the warranty can't be fixed. But you usually won't end up getting the full amount of money necessary to actually replace what's broken. Instead, you'd be paid out the depreciated value of the item. The amount that the warranty provider pays you for a 10-year old water heater may not amount to hardly anything.

If you're still considering a home warranty despite these downsides, you'll want to make absolutely certain you read the details carefully so you don't end up spending a lot of money for a policy that doesn't provide any of the protection you were counting on.