Those of us that have homes know that at any moment one of our appliances could go. One of my wife’s friends this weekend had her electric stove decide to commit suicide, strangely enough the day after the original warranty had run out. Now she’s faced with having to find the money to buy a new one.

by Derik DeLong via Flickr

There are companies out there that offer home warranties for things like this. While signed up with them, if any of your appliances go they’ll give you the money to have that item repaired or replaced… kind of. Supposedly this will ease your mind so that if anything does happen, you know your cost will be minimal. But is it worth it?

One of my budgeting clients has one of these services; I’m not going to say which one. She pays $50 a month for the comfort of knowing that if they need something that they’ll be covered.

Here’s the thing. She’s been paying for this warranty coverage for 5 years, and never had to replace a thing. In other words, her peace of mind has cost her $3,000 so far; that’s not exactly inexpensive. And the thing is that if something goes wrong, they will cover any repair costs up to $500 in full; that’s not so bad, but did she get her money’s worth?

What happens if something can’t be fixed? She then gets to go out and find a new one, up to a certain dollar amount per the company, and whatever it costs she has to pay $50 out of pocket. She can get something more expensive if she wishes, but she had to pay the difference and still pay that $50.

In a way this type of thing isn’t all that much different than traditional life or health insurance. We pay a lot for something that, if we’re careful, we almost never have to use. And if you go for a physical or blood work there’s always a little bit that comes out of your pocket in addition to the high cost of health care coverage to begin with.

I’m on the fence with this one. If they paid for whatever you purchased in full, I might think differently about this. I’m thinking that it’d be much better to take that $50 and put it to good use in savings or some place where it’s earning something back. I know, most people won’t do it, and if this puts your mind at ease then it’s worth it, but for the cost I’d rather go a different route.

What do you think?

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