Are home warranties really worth it? (© SuperStock)

© SuperStock

Lorraine Labonne-Storch opted not to buy a home warranty when she bought a house in New Jersey seven years ago. The home inspector had told her the boiler was on its last legs, but she didn't want to pay the $500 fee for the warranty. (Bing: Check out home-warranty companies)

Less than a week after closing, her boiler burst into flames and had to be replaced for $12,000. Labonne-Storch now regrets her decision to skip the home-warranty coverage. As she learned, a home warranty can pay for itself in one visit from a repairman. And that includes the $100 deductible that many plans have for a service call.

The home warranty would have covered only up to $1,600 for repair or replacement of the boiler, but "any little bit would have been helpful," she says.

Labonne-Storch is now a real-estate agent, and she says her first advice to buyers is to purchase a home warranty. "When a buyer is buying a home, you have to keep in mind that these are used items," she says. "You never know, because the last thing you want to do is spend big money on big-ticket items."

What's your home worth?

What warranties cover and how much they cost
A home warranty can be an inexpensive insurance policy for a buyer who purchases a home that has old appliances, or for new homeowners who don't know the age of the appliances or home systems they're inheriting.

In addition to charging a small deductible, home-warranty companies typically place some limits on what they'll fix.

"Their goal is to keep the prices reasonable," says Stephen McDaniel, assistant general director at the Service Contract Industry Council. "And they can look at the lifetimes on certain appliances."

A typical home-warranty plan might cover air conditioning and heating with ductwork, electrical systems, plumbing (including stoppages), clothes washers and dryers, dishwashers, ranges and ovens, refrigerators and water heaters.

When is a home warranty a good deal?
Knowing the average life span of an appliance can help determine if buying a home warranty is a good deal. Even with new appliances or home systems, the original equipment manufacturer warranties can be less than a year. Today's appliances and systems have a lot of technology packed into them, meaning a lot more things can break, McDaniel says.

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McDaniel recommends getting a copy of the contract before buying a warranty and going with a company that offers good phone support. Some companies require annual maintenance on appliances to keep the warranties valid, and some may ask for the approximate date of purchase for appliances.

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Warranty companies require users to call them to schedule a repair, which will be done by a contractor the company chooses. If you own a home and plan to sell, you should know that these contracts typically can be transferred to a new owner, giving peace of mind to potential first-time homebuyers.

When is a home warranty a bad deal?
There are times when a home warranty may not make financial sense. A newly constructed home or one with new kitchen appliances may not need to be backed by a warranty. Bob Schacke, a home inspector in Chicago who gives his clients 90-day warranties, says most appliances have an average life span of 11 years, so any appliance that’s less than 11 years old is probably in good shape and won’t require a warranty.

Schacke recommends reading a warranty's fine print, because some warranties won't cover old appliances. At that point, it's "buyer beware," he says.

As is the case with any extended warranty you buy, several clauses in the contract could render the warranty useless. For example, all systems must be operational for the contract to be valid. If standard maintenance isn't done, such as cleaning the air-conditioner coils regularly, a repair request might not be covered.

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Lastly, another drawback of home warranties is that you can't select the repair company you work with. If you had a repair company you liked working with in the past, it may not be contracted under the warranty company's network.

Labonne-Storch says checking into a home warranty is as common as researching the lowest mortgage rates when buying a home. She now has a home warranty from her utility company that costs only $21 a month and doesn't require a service fee. It covers her washer, dryer and refrigerator.

The contract has paid for itself, says Labonne-Storch, who has used the service five times in six years.