Should You Buy A Home Warranty?

The marketing ploy is tempting to homeowners: buy a home warranty and repair issues like a broken heat pump or garbage disposal won't come out of your wallet. But as consumer experts warn, the reality is rarely that simple.

"It's an industry that has seldom lived up to the hype of their marketing materials," said Clark Howard, consumer expert and author of "Clark Howard's Living Large for the Long Haul." "People have a very hard time getting the blanket coverage that's promised by the brochure."

How do you get that coverage?

Read the Fine Print

According to Howard, if a homeowner needs a minor repair, the warranty company would typically charge them a small deductible and cover the repair as promised. But homeowners don't buy warranties for small repairs that they could pay for themselves; they buy warranties for bigger problems and these repairs may fall into a coverage loophole.

"You have to look at the fine print and find that they may not cover what you might expected them to," said Anthony Giorgianni, an associate editor at Consumer Reports. "There are a lot of exclusions." There are so many exclusions, in fact, that Angie's List reports that home warranty companies often top the list of most complained-about categories.

"I've just had too many people call and say that companies will stall, that the (repair) people they send will delay and delay," Howard said. "They try and wait you out. Then you go ahead and hire somebody out of your own pocket."

While Howard doesn’t recommend buying a home warranty for yourself, if you're trying to sell your home in a stagnant market, he said it may make sense to offer a one-year home warranty to prospective home-buyers to give them peace of mind.

Finding Peace of Mind

Of course, if the home warranty company doesn't cover a necessary repair, the warranty may not give the new homeowner any more value or peace of mind than if they'd paid for repairs themselves.

Instead of buying yourself a home warranty, Giorgianni recommends setting aside the money so that you can self-insure against costly home repairs. "Work towards putting away six months or a year of net salary into an account," he said. "Create a capital fund to repair things or replace them when the time comes."

This approach offers more flexibility than paying premiums to a home warranty company. "If the product doesn't break and if an emergency comes, say you lose your job, you can use that money," Giorgianni said. "That makes a lot better sense than buying all these service contracts to protect you from something that may not happen."