We understand there’s a lot to think about before choosing a home warranty provider. That’s why our researchers and editors spent over 320 hours reviewing the home warranty industry, comparing multiple companies and contracts, and even reaching out to get advice from experts such as professional contractors and industry attorneys.
Before making a final decision, here’s what you need to know:
Common Misunderstandings About the Industry
A common problem we noticed while reviewing hundreds of online complaints regarding the home warranty industry is how hard it is for consumers to understand contracts. A warranty is not an insurance plan—it’s a service contract. It has service fees instead of deductibles and providers are not obligated to cover everything.
Exemptions and exclusions are not always obvious, so it’s important to read the contract's fine print. Also, coverage differs from policy to policy and from state to state, so comparing your policy to that of a friend or family member in another state may not be ideal.
State Regulations
The most important thing a home warranty company must prove—as well as any other company offering services to consumers—is whether it is legally allowed to do business in a particular state. That means the company is accountable to follow the regulations of the industry by an authority in that state.
In many states, the home warranty industry is regulated by its state’s Commissioner of Insurance or department of consumer protection. Keep in mind, however, that each state has its own rules and regulations.
In some states, such as Delaware, a home warranty company is classified as a risk retention group and is therefore exempt from state regulations.
As a consumer, you are entitled to protection against malpractice, fraud, and other illegal actions that may be committed by a home warranty company.
In the event a company doesn't perform the services promised to you in the contract, or has deceived you into signing a contract in which it does not service your state, the state regulator is where you have to go to file a complaint.
Before choosing a home warranty company, we recommend consumers research and review home warranty regulations in their home state, as well as federal laws.
To find out the regulator of your particular state, you can use our map below:
Common Mistakes that Result in Customer Dissatisfaction
When you don't understand your contract or don’t read the fine print, it can cost you.
We spoke with Timothy Meenan, attorney and Board Counsel to the Florida Insurance Guaranty Association about this issue. His advice? Read the contract thoroughly. “One of the things I tell customers to do is research. Read what’s covered, but also read what’s not covered. Take time after you get the actual terms and conditions. Spend five minutes reading the exclusions and coverages.”
Another common mistake is not being aware of your system or appliance’s failing condition. We’ve analyzed hundreds of customer reviews online that consist of complaints about the home warranty company in regards to dissatisfying service performed by the contractor.
Our team spoke with Rich Morgan, owner of Magic Touch Mechanical in Phoenix, Arizona and professional contractor with over 30 years of experience in HVAC.
Morgan, who attested to this experience, said that “when you [contractors] see equipment that's in a state of disrepair or presents a problem that a previous technician might not have gotten to the root of, you think about the wear and tear on the entire system. It’s difficult to point out and they [customers] aren't happy when you do it.”
Last, consumers should remember that the service contractors may not be from the home warranty company. While companies should be aware of who they hire, customers should keep in mind that one contractor’s work doesn’t account for the other thousands working with that warranty company.
It’s best to contact your home warranty company directly and submit a complaint to customer service about the particular contractor sent to you. Some companies allow you to find your own contractor and will take care of the service bill.
According to Todd Washam, Director of Industry and External Relations for Air Conditioning Contractors of America (ACCA), word of mouth is still the best referral method. Talk to your friends, neighbors, and coworkers to see who they like and would recommend to you.
What To Watch Out For When Buying A Home Warranty
The home warranty industry isn’t the easiest to navigate. To get the best service for your home or the property you're selling, there are a few things you need to keep an eye on, including policy exclusions, limitations, overall costs, and reputation.
That’s why it’s so important to research each company, as this will give you the insight you need to make the right call. To help you with this first step, we’ve gathered the top five things to watch out for when purchasing a home warranty.
It's also very important for you to know that the home warranty industry isn’t the most ethical industry out there. Most companies have overwhelmingly negative reviews on consumer review websites like the Better Business Bureau, with the majority of complaints involving claim denials due to plan exclusions.
Companies have been sued over allegedly practicing what is known as bad faith insurance, where a customer’s claim is delayed or wrongly denied by the home warranty company.
For example, in 2015, Choice Home Warranty agreed to pay nearly $800,000 to settle a lawsuit brought by the New Jersey attorney general for using “creative and deceptive means to deny their customer’s claims.”
Additionally, other companies have been found guilty of illegally selling system and appliance protection plans without proper licensing.
Read the Terms and Conditions Carefully
The first and most important step you should take is to carefully read your contract. This will let you know whether the benefits are worth the cost or if there are other companies offering better alternatives.
As with many industries, home warranty companies offer different plans, policies, and costs.
Spend all the time you need to read each service contract, leaving no stone unturned. Check which appliances and/or systems are covered under each plan, what they exclude, and the coverage limitations for each system and appliance.
For example, basic home warranties cover typical appliances like dishwashers, microwaves, refrigerators, and washing machines, but they don’t all cover less familiar appliances or house systems such as doorbells, fans, septic tanks, and garbage disposals.
Some of these can be added as optional coverages, but they come at an additional cost.
Look at Common Exclusions
You will want to check how systems and appliances are covered by examining the limits and exclusions to the coverage for each system and appliance.
Typically, home warranties only cover malfunctions due to normal wear and tear, and they usually don’t cover preexisting conditions (mechanical problems before the plan kicked in) or failures due to unforeseen circ*mstances such as lack of proper maintenance, rust, or corrosion.
Additionally, home warranties only cover the mechanics of an appliance or system and excludes anything not mechanical. For example, a home warranty would cover all mechanical components of an oven, but it wouldn’t cover handles, hinges, doors, seals, glass or lighting.
Some companies offer coverage for these circ*mstances as standard, while others offer them as optional add-ons. For this reason, you need to be clear on what is and isn’t covered on a contract, since most home warranty conflicts derive from customers not understanding the coverage their plans provide.
Beware of hidden language in home warranty contracts
Although there are well-organized and clearly-worded home warranty contracts out there, most contracts use complex sentence structures that can cause readers to skim over specific clauses that may hinder or limit their understanding of covered items.
Additionally, contracts can use subjective wording that, if not read carefully, can lead customers to agree to clauses that don’t benefit them.
The two best examples are “properly maintained” and “normal wear and tear.” Many companies only cover systems that break down due to normal use and aging, but they also can deny claims if said items weren't properly cleaned or taken care of by the customer.
A homeowner or realtor can conclude their appliance or system broke down due to age, but the scheduled contractor may determine the opposite, stating the failure was due to improper maintenance.
To prevent this, you should always read the contract thoroughly, especially the sections involving exclusions, restrictions, and limitations. You should also ask about any unclear terminology and keep certified maintenance records of your systems and appliances to prove you've been taking care of them properly.
Get three home warranty quotes before buying a plan
We highly recommend that you don't settle for one policy, but instead, review at least three home warranty companies that interest you and see if they've published sample contracts online.
It’s best to get quotes from at least three different companies and compare benefits and price ranges. If you call or contact them by live chat or email, ask all the questions you feel are necessary to make an informative decision.
Trends to be aware of in the home warranty industry
Keeping an eye on current housing market trends can play a role in saving you money on premiums. Let’s review some current trends:
Some realtors make agreements with home warranty companies to refer their clients to them, but realtors shouldn’t accept compensation as it could possibly violate the Real Estate Settlement Procedures Act (RESPA), i.e.,buyers aren’t obligated to purchase a home warranty from any specific provider.
It’s ideal to get your home inspected by a professional who can offer suggestions on whether or not a warranty is necessary—there are circ*mstances where home warranties aren’t needed. For example, if a home’s systems or appliances are all new, they are usually protected by a manufacturer’s warranty. Home warranty companies don’t cover anything that’s covered under another type of warranty, so purchasing this type of product for brand new systems and appliances would be impractical.
