Are Home Warranties Worth It in 2026? We Did the Math

Updated February 2026 • 10 min read

The $5 Billion Industry Built on Fear

The home warranty industry generates over $5 billion annually by selling homeowners peace of mind. The pitch is compelling: pay $50-75/month and we'll fix anything that breaks. The reality is less reassuring.

We analyzed BBB complaints, FTC data, and real claim outcomes across the five largest home warranty companies:

The Math: Home Warranty vs Self-Insurance

Let's run the numbers for a typical homeowner over 5 and 10 years:

Scenario: Home Warranty

• Monthly premium: $60/month = $720/year
• Service calls (2/year avg): $85 × 2 = $170/year
• Total annual cost: $890/year
• 5-year cost: $4,450
• 10-year cost: $8,900
• What you get: 1-2 approved claims/year averaging $250-500 each
• Estimated 5-year payback: $1,500-3,000
• Net loss over 5 years: $1,450-2,950

Scenario: Self-Insurance HYSA

• Monthly deposit: $60/month into a 4.5% APY HYSA
• 5-year balance: $4,050 (with compound interest)
• 10-year balance: $9,100
• Average home repairs needed: $500-1,500/year
• Net after repairs (5 years): $500-1,550 remaining
• Net after repairs (10 years): $2,100-3,600 remaining

Why Claims Get Denied

Understanding why 30-50% of claims are denied reveals the core problem:

1. Pre-existing conditions: Any issue the home inspector noted — even "functioning but aging" — becomes grounds for denial
2. Maintenance requirements: Without annual service records (HVAC, water heater), claims are denied
3. Improper installation: If a previous owner did DIY work, current repairs aren't covered
4. Code upgrades: If fixing something requires bringing it to current building code, that cost is excluded
5. Capacity limits: Many contracts cap payouts at $1,500-2,000 per category — your $8,000 HVAC replacement gets $1,500
6. Cosmetic exclusions: Anything deemed "cosmetic" is denied, even if it affects function

When a Home Warranty MIGHT Make Sense

To be fair, there are narrow scenarios:

• First-time buyers with old homes: If appliances are 10-15+ years old and you have no emergency fund
• Real estate transactions: Sellers sometimes include 1 year of coverage to close a deal (it's essentially a marketing cost)
• Rental property owners: Where unexpected repair costs affect investment returns

Even in these cases, set a hard rule: use the warranty for one year, then switch to self-insurance.

How to Build Your Own Home Repair Fund

1. Open a separate HYSA — high-yield savings at 4-5% APY (Marcus, Ally, Wealthfront)
2. Auto-deposit $60-100/month — match what you'd pay a warranty company
3. Get annual HVAC maintenance — $100-200/year prevents $3,000-10,000 replacements
4. Build a contractor network — plumber, electrician, HVAC tech, handyman. Ask neighbors.
5. Learn basic fixes — YouTube + $100 tool kit handles 80% of minor issues

Cancel Guides for Major Home Warranty Companies

• Cancel American Home Shield — 30-day notice trap + refund guide
• Cancel Choice Home Warranty — retention gauntlet survival
• Cancel First American Home Warranty — refund calculation
• Cancel Select Home Warranty — continued billing warning