Angie's LIST Guide to
Home warranties

Year after year home warranty companies have topped the Angie's List most complained about category list, with nearly half of member reports in this category rating these companies unfavorably. The key behind this appears to be an expectations gap between the companies and their clients regarding what is covered and whether service calls on covered items are entirely free.
 

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What is a home warranty?

A home warranty is often a feature in the sale of a home.  In that scenario, the seller typically pays a few hundred dollars for a one-year warranty covering the home's major fixtures such as the furnace, water heater and kitchen appliances.  This gives the buyer some protection during that first year of ownership  knowing that if something major breaks down it will be covered.  Many homeowners choose to continue paying an annual premium rather than risk bearing the full replacement cost of a major item.

Although technically not insurance, warranties are very similar in that the homeowner is paying an up-front fee to protect against a potentially huge replacement cost.  If nothing breaks during the coverage period, the customer may in hindsight feel the fee was a waste of money, but that's what managing risk is all about.  Are you financially prepared to replace major components as they are needed, or would you rather pay a set amount per year whether something breaks or not?

One important difference between insurance and a warranty is that the homeowner must go through the warranty company to arrange for service, and this can be another point where a customer might be dissatisfied.  Home warranty companies establish relationships with service providers in the areas for which they provide coverage.  So whether customers are satisfied with the warranty company depends in large part on whether they are satisfied with the repairmen whom the warranty company has hired.

Even though home warranties aren't considered insurance, the companies that sell them are typically regulated by each state's department of insurance. According to the Service Contract Industry Council, 32 states require home warranty companies to register or obtain a license with that state's department of insurance. This state agency is responsible for licensing the entity, examines the company for compliance of applicable laws regarding home warranty services and monitors the financial condition of the company for the protection of their clients.

What's covered?

Most home warranty companies offer a variety of plans, each providing different levels of coverage, so be sure to read the details of any contract before buying. Even if you choose to renew the contract from year-to-year, double-check the details of your plan because coverage can change annually. Here is a general idea of what a homeowner can expect to find in each tier of service:

BASIC COVERAGE

  • Plumbing systems
  • Range/oven
  • Dishwasher
  • Garbage disposal
  • Exhaust fans
  • Sump pump
  • Water heater
  • Ceiling fans
  • Heating and electrical system components
  • Built-in microwave
  • Whirlpool tub 

ENHANCED COVERAGE

  • A/C
  • Washer/dryer
  • Refrigerator
  • Garage door opener

OPTIONAL ITEMS

  • Pool
  • Spa
  • Well pump
  • Septic system
  • Standalone freezer
  • Central vacuum

The different types of coverage

home exteriorPay attention to the scope of coverage in your home warranty.Know what the policy will and will not cover. Asses your home to see if the warranty is of good value. (Photo courtesy of Angie's List member John P.)

For newly constructed homes

Many states require that all home builders and contractors warranty their work on a newly constructed home.

This provides the homeowner with the assurance that should any major defects or repairs become necessary within its new home for various time periods up to ten years following construction that is not the fault of damage or negligence by the homeowner then the repairs or replacements necessary will be covered.

The workmanship of the home construction, materials used and performance of major systems such as the plumbing, electrical and HVAC are all covered under these types of home warranty services. This includes the overall integrity of the structure. Each state monitors the specific requirements in these situations.

For pre-existing home purchases

When buying a pre-existing home, buyers can choose to purchase home warranty coverage. This will provide them with coverage against for repair or replacement costs that they may incur with existing mechanical systems or appliances in their new home within a specific time frame following the purchase date. Major mechanical systems that are covered include plumbing, electrical, heating and air.

For seller solutions

Homeowners that are trying to sell their homes may want to consider the benefits of offering a home warranty on their home. The seller can choose to pay for the home warranty coverage on his or her own or ask that the buyer pay for a specified portion of the cost. By including a home warranty option on their home, homeowners can get the maximum selling price for their home, be relieved of further obligations should repairs or replacements become necessary after the final purchase is completed and interest buyers in a tough market. Home warranties can be purchased through independent home warranty companies of the seller or buyer’s choice or through the real estate agent that will handle the paperwork with the home warranty company for the parties.

What do home warranties cost?

The average cost of a basic coverage plan ranges from $350 to $500 a year, with the cost of an enhanced plan adding $100 to $300. Prices reflect not only coverage, but also a company's loss history, which is determined by how often an item breaks down and the cost to repair it. Some home warranty companies offer additional coverage for certain items, such as a well pump or pool, for an extra fee. Regardless of the type of plan, homeowners typically pay an additional service fee ranging from $50 to $75 for each repair job.

The majority of home mortgage companies have a set price for their basic home warranty plans that they offer. The type of housing such as townhouse, condominium, single-family residential, duplex or apartment often determines the set cost of the home warranty coverage.

While detached garages are generally covered under the basic home warranty plans that are offered, most separate buildings on the premises are not. Extended home warranty plans are available at additional costs for these building structures.

Costs for home warranty plans are paid upfront before the coverage goes into effect. Some companies offer their clients the ability to make payments on their home warranty plans if it helps to secure the sale or they have a long standing with the client.

Complaints about home warranties

Among the many negative reviews submitted by Angie's List members about warranty companies, the key complaints are: (1) Something wasn't covered that the customer assumed was covered, and (2) although the item was "covered" there was still a service call fee that the customer didn't expect.   Although this expectations gap can also occur with insurance policies and other purchases, home warranties may be particularly prone to it because so often they are purchased by one owner (the one preparing to sell), but used by another owner (the buyer). Most plans do require an additional service fee to be paid by the homeowner. Typically, the least expensive plans cover the least amount of items and require the highest service fees.

In order to minimize misunderstandings, experts stress the importance of reviewing and understanding a service contract before purchasing a home warranty. For example, if a certain appliance needs repaired or replaced, a homeowner should know how much money will need to be spent out of pocket.  Also, how comprehensive is the potential repair or replacement?  If one component of an appliance breaks but the unit needs replacing, is the warranty company responsible for replacing the unit or the component? That's an essential question that needs to be answered. It’s also important to review at least three warranty companies, understand what it is covered and what is excluded.

 To keep from getting fooled by your contract, consider the following tips:

  • Check with your state's department of insurance to verify if the home warranty company you're considering is properly licensed to do business. If licensing isn't required in your state, inquire about the company's status with your local consumer protection agency.  If you join Angie's List you can search for home warranty companies that serve your geographic area and find out which have received positive reviews from past customers.
  • Be sure to read the fine print and ask the company any lingering questions before deciding if a home warranty service contract is right for you.
  • Tell your real estate agent about any denied claims. Oftentimes, he or she will have a relationship with the home warranty company and can make a call on your behalf.
  • Be sure to tell the home warranty company if their network contractor did a good job or not. Most keep a rating system on their contractors and disperse the work accordingly.

Comments

I have an extended plan and when my water heater broke I still had to pay over $500 out of my pocket with my home warranty plan.

Did the tech have to do any modifications or relocate your water heater? The extended plan with most all of the companies covers the code upgrades, permits and haul away BUT not modifications or relocation. The company must give you a breakdown of non-covered costs before the work is done, did you receive that?

Home Warranty companies only cover the cost of the water tank, and not the cost to install it (City required permits, piping, and other materials,and of course, labor)

Here are additional problems I've run into over the last four years using two different companies:
1. A minium of 24-48 hour wait for a contractor response
2. Competent and incompetent service contractors
3. 2-3 month delays in reimbursing the cost of repair if I find a contractor locally that I trust their work or the company can't find someone quickly.
4. One special thing that all home owners should consider is negotiating the stated price of the service &/or adding coverage for the same price year after year

I work for a home warranty company which will appear nameless. I have been in the busienss for over 15 years. I have noticed that nobody ever writes a good review, always a bad/negative review.
I know that my company follows our policy and IF I get to talk to the new buyers I will always explain how the warranty works and how best to use it. If they listen to me they will always be happy and renew year after year.
A home warrnanty is a service policy and for a minimum premium we sure cover alot and pay out alot of claims. It works, I would never be without my home warranty!

Janet
I appreciate your comments and your perspective. I strongly believe in home warranty insurance and have had one since I bought my first home in 1982. I've been with my current warranty company for eight years. Recently I've run into a bit of bad luck with my pool equipment (for which I pay extra). I just received a letter from my home warranty company stating they will not be renewing my policy.

It is this type of treatment that gives insurance companies a bad name. As long as you pay the premium and don't have any claims all is good. When you need the coverage (for which you've paid) they dump you.

Perhaps you have a perspective to share on this?

Thank you

I am so sorry to hear that you were not renewed. The company does have the right not to renew you as they do go through an underwriting process just like your house and auto insurance. If the company feels they will never recoup their losses than they won't renew you. However, you can most certainly sign up with another warranty company if you wish to do so, but call around and see if you can talk to the rep and get a relationship going in case you ever need someone to go to bat for you, make sense?

I, TOO, HAD PAID FOR COVERAGE FOR FIVE YUEARS. LAST YEAR WE DID HAVE SEVERAL COVERED ITEMS NEEEDED TO BE REPAIRED. WHEN IT CAME TIME FOR RENEWAL THEY WOULD NOT RENEW OUR CONTRACT.

SO MUCH FOR THAT INSURANCE COMPAMY. OUR PREMIUMS WERE ABOUT $450 A YEAR.

SOMETHING SHOULD BE DONE. IT IS A CLASSIC RIPOFF!

Did you ask the company why you were not renewed?

The same thing happened to me this month. I have had AC problems the past few years and I've had one of their contractors state that I needed a new system...of course they got a second opinion and changed several things from the AC but did not replace it like it should have been. Just this month I put in another claim because my AC unit went out again...they had a repair done to it but not a month later it went out again. I called within the "recall" time of 30 days but since then my contract was set to expire....they decided not to renew my contract!!! Really, they didn't even fix the problem. I too paid $450 a year for 5 years. The claim representative said they would only look at what they last fixed but they didn't even fix it right. I'm going to fight this.

Our home warranty 2-10 has increased our yearly fee 36%, now ask to pay $570 for a basic plan for 2013-2014. I was told this increase is because the contractors in my area are now charging more for services. The economy is still distressed so what's with this high increase, we have had only one minimal claim in 2 years.

Unfortunately, costs are going up even in this distressed economy. I would most certainly question the cost increase if you only had one claim in 2 years, or go with another warranty company but talk to the rep first. Renewal rates are always more, the first year rate is the wholesale/discounted rate.

Last year I had 2 claims 1 was for the microwave which would have been cheaper to replace but warranty chose to repair for $510 2nd claim was for the dryer which they paid over $1000 to fix and I had no issue renewing when policy came due

I would say you most certainly saw the value in renewing! The warranty is
a process and they will always repair first with replacement being second. Sounds like you are one happy camper!

Had American Home Shield for over 20 yrs. 2 Ac units finally died and had to be replaced. We got dropped. The AC units were over 30 yrs old...what could we have done to prevent them from dying?? Funny that they dropped us now that almost everything is new in our old house!!

I have been a home warranty contractor for 15 year the people who use warranty are people that don't like to spend any money. on some appliances like air conditioning or plumbing but they spend their expensive cars or things that they show off .

in 2010 a representative from 2-10 called me to inform me the laws were changing in relation to R-22 to the new R-14, and if I did't buy the extended coverage i could be paying up to 2000 dollars for ac repairs. He said if my outside unit, the condensor, went bad and i didn't have this coverage, I could have to pay for the air handler, inside unit, out of my own pocket. However if i get this coverage rest easy I am covered. I knew there was a green push to change the freeon so i purchased the coverage. In 2013 guess what, my condensor went bad, now i called to report the outage and was told they were not going to cover the air handler because " The law changed" and they are not responsible for it. I have argued until I am blue in the face with them and they simply refuse to pay for the entire system. Even though they agree the call in 2010 was correct "at the time" it is not a valid claim today because the law changed. Any suggestions??? Email me please.

I am looking into buying the insurance, so I decided to research for reviews. Since I don't understand anything about AC is really hard to know if it's worth buying this home warranty. I appreciate comments like Mike Crawford, that explain the problem. I just don't know if the things they cover are just simple stuff that are not that expensive to fix anyway. Does anybody know?

We are looking to purchase a home and have been told we should buy a home warranty. Do the warranty companies limit coverage based on pre-existing conditions? For instance if the home has an old AC unit can they deny coverage because of it? Do they inspect the home or require an inspection by someone to determine if my home is eligible for a warranty that I have to pay for in order to purchase the warranty when we buy a home? We have never purchased a home warranty and I am a little uneasy that they may be a rip off even though our realtor has recommended it.

We are looking to purchase a home and have been told we should buy a home warranty. Do the warranty companies limit coverage based on pre-existing conditions? For instance if the home has an old AC unit can they deny coverage because of it? Do they inspect the home or require an inspection by someone to determine if my home is eligible for a warranty that I have to pay for in order to purchase the warranty when we buy a home? We have never purchased a home warranty and I am a little uneasy that they may be a rip off even though our realtor has recommended it.

It is very hard to give a company a good review if they do not deserve it. For concern about covering A/C, based on my experience it will not be covered. They will send out a 'tech" who does nothing, gives me a work order saying he did nothing, but tell the warranty company it is fixed by a part that he has in his pocket. Call them out on that lie and they say they don't covered units that have a condenser and air handler that don't match, and know I cannot prove that because I did not work for the A/C company on the day my unit was made. No where in the contract does it say that. It is a screw job just to fatten their wallets and to hook you up with fraudulent contractors that will rip you off when they get to the house. Those were my 2 calls and I knew I had to pay a fee for them to come.

At least they responded to your claim, our AC went out on a Saturday, and the temperature were 104 to 109 and the company could not find one of their contracted companies to come out for over 48 hours. This with and elderly person living in the home. I have had AHS for 12 years and this is the worst no service I have ever heard of. I called 5 times in 20 hours and no one ever called me back. I had to call to find out no one was available. I left a message to have a supervisor call me and 8 hours later still no call.

I have been with my current home warranty company for about 12 years and have had one claim -- for the A/C. During the hottest part of the summer my A/C quit. After almost 10 weeks during the hottest temps on record for that summer, they could not find a tech that could meld my current heating unit with a new A/C unit and did not replace the unit because of that. So I settled with the home warranty company for 1/2 the cost of a new unit because that is all they said they could do - leaving me the cost of the rest. Shouldn't they be responsible for the entire cost in this case? I don't know why they could not get a tech because I made one call to a local A/C and heating company and got it done without any issue. Did the home warranty company just settle with me to prevent paying someone to do it right?

Home warranties are designed and intended to be "repair" policies, not "replace" or "upgrade" policies. The contracts are written to handle "common" failures related to normal wear and tear. The expectation is to return your failed system to the exact condition it was in just prior to the failure....not make it better or new again. Warranty Companies will go to great lengths to repair an item before they replace. Many variables exist in the field and no one Home Warranty contract can cover every home owner's scenario.... that is when non-covered costs creep in. Warranty companies can only assume a replacement to be "plug and play" and/or assume "builders standard." Just look at the cost range of a faucet? Some systems within the home are custom applications or have restricted access points... perhaps the result of a remodel or home addition. This is why Warranty Companies limit coverage and assume a replacement to be plug and play. For example... if your water heater fails and the Tech condemns the unit, the Warranty Company will pay for a new water heater and the "plug and play" install cost.... not the cost of relocating, not the cost of extending water, gas or electric lines because the new unit is a different size/shape.

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