Is a Home Warranty Worth It?

I recently received an advertisement in the mail from NextEra Home, a home warranty and protection company. It explained, “A service plan offered through NextEra Home provides repair and replacement of your major home appliances, major central heating and HVAC system, electrical, plumbing, and more.” According to the ad, it offered affordable monthly rates with an option to cancel at any time.

Their basic plan offers up to $19,100 in coverage, while the plan they tout as their “best value” would cover me for up to $28,600.

Over $28,000 in coverage for just an “affordable monthly rate”? Sounds good. Let’s examine the numbers a little closer before we sign up, though.

Since they say their Healthy Home Plan is their best plan, let’s look at it first. It offers up to $28,600 in coverage for $65/month. This plan basically covers every system and appliance in your house. It also covers ceiling fans and garage door openers.

When I received this ad, we’d already been living in our house for almost eight years- 94 months, to be exact. And we have had to get some appliances repaired and replaced. So would we have benefited from such a plan if we’d had one since the day we moved in?

Let’s do the math and find out.

Over the past eight years, we’ve had to replace our water heater, garbage disposal, and dishwasher. We also needed repairs for our furnace (twice), kitchen sink pipes, sump pump, and garage door. For all of these replacements and repairs, we spent a total of $2,934.

NextEra’s Healthy Home Plan would have covered all of these expenses. Unfortunately, $65/month for 94 months totals $6,110, more than twice what we paid.

But wait, it gets worse! Their service call deductible is $75/visit. After you add the service call charge for nine visits, we would have paid $6,785 for NextEra’s plan.

So by having an emergency fund in place and paying for the repairs with cash instead of buying their home warranty plan, we spent $2,934 instead of $6,785 with NextEra, a savings of over $3,800.

Let’s also look at their other two plans to see if maybe they would have been worth the price.

Their Healthy Systems Plan ($55/month) covers your central A/C and heating, water heater, and sump pump. Had we subscribed to that plan over 94 months, we would have paid $5,470 for $1,798 worth of repairs and replacements. Their Healthy Appliances Plan ($45/month) only covers your typical kitchen and laundry room appliances. We would have spent $4,530 for $1,059 worth of work.

The only times these plans feel worth it are in the months where you do replace or repair an appliance. For example, it would’ve been handy the month we paid $538 to have our furnace repaired. But we also had 32 consecutive months where we didn’t need any repairs at all.

The bottom line is paying for any of these plans would have wasted thousands of dollars over an eight-year period.

On the surface, these plans sound good. They’ll set your mind at ease, as you know if anything goes wrong with your appliances, NextEra will replace or fix it. If you really like plans like these though, why not pay yourself instead of a company like NextEra?

Open a new checking account and deposit $65 into it every month. In three years, you’ll have $2,340. That will cover most repairs and replacements. Just think of it as your home appliance and systems emergency fund.

While it’s possible that some people will benefit from using these types of plans in the short term, it’s rare. Pay yourself instead of a home warranty company and you’ll come out ahead in the long run every time .