A home warranty is a service plan that covers the cost to repair and replace major household appliances and systems that can break over time. Commonly covered items may include dishwashers, refrigerators, washing machines, and other appliances. Although they sound similar, a home warranty and a homeowners insurance policy aren’t the same. A homeowners policy provides insurance coverage for the unexpected damage or loss of your home and its contents. It won’t provide coverage if your air conditioner stops working. If you’re buying a home, you may be considering a home warranty. It’s common for the sellers to throw in a one-year home warranty to help close the deal. If the seller provides a warranty, you can expect coverage for a year. You’ll eventually need to decide whether it’s in your budget to keep it and pay the cost.
On average, home warranties cost $300 to $600 every year for a comprehensive plan that covers appliances and systems-about $25 to $50 a month, according to numbers by Consumer Affairs.
When you purchase or hold a whole home warranty through a third-party, you don’t get to pick your service provider when things go wrong. If your HVAC unit breaks down, you don’t get to call the most reputable ac repair company in town out to work on the repairs. Instead, you contact your warranty provider (often spending several hours on hold), and they send out a contractor. Often, the contractor will be the least expensive in your area, and this usually leads to poor quality service that leaves homeowners with a bad taste in their mouths.
If the appliances in your house are new and already have warranties, buying a separate home warranty would be a waste of money. Newly built homes generally have one-year warranties for appliances and systems, too. If your home already has warranties in place, you probably don’t need an additional home warranty. Home warranties can be useful to replace or repair mid-lifecycle appliances such as an oven or dishwasher, that may be more expensive to buy new.
One of the important keys to home warranty coverage is that you must properly maintain your air conditioning unit. A home warranty covers breakdowns that result from routine wear and tear. If you don’t take care of your air conditioner, and a it’s determined that the unit broke down from lack of maintenance, it may not qualify for home warranty coverage. All home warranty contracts are different, and you must absolutely read the fine print of your contract. It may state, for example, that you are only covered for up to $300 in interior plumbing repairs, or that roof leaks are not covered at all.
Many service providers are now starting to turn away requests from home warranty companies. Essentially, they are only a middleman between you and a service provider like ourselves. Home warranty companies will typically charge co-pays for equipment & system repairs, that usually equates to the same price as a contractor’s service fee. The co-pay essentially covers the service fee you would be paying the contractor directly. In addition, to maintain profit margins, home warranty companies typically seek the cheapest bidder to complete the repair. This means that you may not be paying for a quality repair or a contractor that stands behind their work. Additionally, even if the home warranty company denies your repair claim, you will still be liable for the co-pay or service fee.
In a worst case scenario where a technician is dispatched to your home and actually causes more damage, home warranty companies usually will not accept liability, leaving you responsible to recoup costs.
Washington Post recently released an article called “Will a home warranty bring you peace of mind? Maybe not.” in which they stated that home warranty companies typically bring in revenue exponentially higher than the costs paid out for equipment repairs.
Checkbook looked at the financial filings of the parent company of American Home Shield and several other warranty providers. For the nine months ending in September 2018, American Home Shield reported revenue of $979 million. The cost of providing services to customers was $532 million. That means that customers received about 54 cents in services for every dollar they paid the warranty company. That difference makes home warranty businesses incredibly lucrative, compared to other insurance products.
Many home warranty companies are subjected to negative BBB ratings all around. American Home Shield, for example, has over 20,000 negative reviews on their BBB page within the last 3 years.
The most common complaints are due to claims being outright denied, low quality repairs, or appointments taking weeks to schedule. More often than not, customers will also spend up to 3 hours on hold waiting to resolve a claim with their home warranty company.
Ultimately, if you currently have a home warranty or are looking to add a warranty to your home, here are some of the general things you should be on the lookout for:
Most home warranty companies will have a list of contractors they do or do not work with. Alternatively, you can seek out a contractor on your own and check to see if they accept policies or work through your home warranty company.