Are home repair warranties worth the cost?

Say it’s the fifth day of temperatures over 98 degrees in South Carolina during a summer of record heat. Your air conditioning system has kept you cool through it all — until now. The unit is still spinning, but the air coming out isn’t cool. The temperature in your house starts to climb. What do you do?

If you are like most people, you Google “AC repair” and start making calls. But you don’t want to pay service fees to three different companies just to come see what the problem is, so getting comparative estimates won’t work. Besides, the whole family insists they are “dying” from the heat. You quickly pick a company to fix the AC and that’s that.

Once you get through the AC crisis, you start to wonder if maybe you should get home repair warranty insurance. But is it a good deal?

My family has had a home repair warranty on our 28-year-old home for about 10 years. Initially it ran us about $300 a year with a $35 fee per repair visit. The premium and the visit fee increased every year until recently when I took the time to shop around and find a better deal. However, even with lower rates, looking at the math over the last 10 years, the numbers alone don’t support the wisdom of that purchase. So why do I buy a home warranty?

Peace of mind

What the numbers don’t show is the peace of mind the warranty gives me. When something breaks, the home repair warranty company (let’s call it “Fictional Warranty Co.”) sends a repair company to my house to fix it. I pay $45 each time I schedule a visit, but there is no cost for the rest of the repair.

I don’t think this saves us money on repairs overall, but I like the fact that Fictional Warranty Co. calls a repair firm (“The Repair Shop”) and then monitors how much is charged. So if my refrigerator breaks, for instance, I am protected from Bob of The Repair Shop trying to inflate the price. Instead of telling me it will be $400, when it’s really only $200, Bob has to report the price to Fictional Warranty.

Fictional Warranty also helps me resolve a situation in which The Repair Shop doesn’t do the work correctly, handling the additional cost and repairs on my behalf. Appliance and system repairs are rarely necessary at my house, so I don’t have a network of contractors I know and trust. But Fictional Warranty vets the companies for me, manages what is charged, and resolves any problems. That’s worth the yearly warranty cost to me.

Warranties get mixed reviews

But when I did some research, I found no consensus on whether home warranties are a good idea for older homes (all the sources I read said to avoid them for new homes).

Consumer Reports recommends avoiding warranties because of the hundreds of dollars these contracts can cost. “It makes much more sense to buy reliable products and maintain them as the manufacturer recommends,” it says. Instead, Consumer Reports suggests placing the money you would have spent on a service contract into a savings account or repair fund.

However, other personal finance experts also point to the added benefit of peace of mind, which can make a home warranty worth the cost for some people. And your personality and risk tolerance will, of course, factor into your decision-making, as will your existing network of repair companies. From a risk standpoint, if you typically avoid risk, you’ll probably feel more comfortable knowing your maximum out-of-pocket yearly repair costs.

Also, if you don’t know much about appliance repair and don’t know whether to trust the repair companies in your area, you may like having a home warranty. On the other hand, if you are kind of handy and can do some work on the house yourself, or you are confident you can find service providers you like and trust, you may want to forgo the warranty.

Shop around

If you decide you want a home warranty, shop around and compare options. Consumer Affairs provides a useful comparison of features, costs and companies that offer home warranties. Call the companies you like and ask for the price of each home visit and the yearly cost. Then you can buy the warranty of your choice online or over the phone. Revisit your choice each year to make sure you keep getting the best deal.

Kathryn Hauer is a certified financial planner and fee-only investment advisor with Wilson David Investment Advisors in Aiken, South Carolina.

Learn more about Kathryn on NerdWallet’s Ask an Advisor.

This article first appeared in NerdWallet.