Should You Buy a Home Warranty?

Home warranty companies run lots of ads promising to save you thousands of dollars when something goes wrong with your refrigerator, furnace, plumbing, and other appliances and systems. But don’t count on the peace of mind these plans promise. These warranties are terrible deals and simply aren’t worth their price tags or hassle.

Warranty companies are the subject of thousands of complaints to consumer agencies. Even after paying $400 to $1,000 for the coverage, consumers will find home warranty contracts typically are filled with fine-print exclusions that easily can stick them with much of the costs for product repairs or replacements. The vast majority of homeowners who buy these plans will pay far more in premiums and service fees and for uncovered repairs than if they skipped buying warranties. Plus you don’t get to decide who does the work. We find that the best repair services overwhelmingly disdain these plans and won’t work with home warranty companies.

Terrible Deals

Home warranty companies generally take in way more fees than they ever pay out for repairs. We checked 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 plans.

And (incredibly lousy) insurance—against the financial risk of needing some types of home repairs—is really what these companies offer. We often write that insurance is for catastrophes, for risks that are intolerable, like fires or auto accidents, or for healthcare. The risks covered by home warranties might be unpleasant, but for most homeowners they are not catastrophic. In fact, most repairs covered by these policies—for appliances, HVAC systems, or plumbing—are inexpensive.

To be clear, we are not warning against warranties for new homes. The warranties provided by new-home builders should be comprehensive, cover as many years as you can get—and be provided for no extra charge.

They’re Expensive

When you have a problem with an appliance or home system, warranty companies promise to dispatch a pro to put things right. If the technician can’t fix it, the company promises to buy a replacement product.

Sounds great, but sales pitches usually make it seem like you’ll never pay for a home repair again. Unfortunately, it’s not all that simple: For most homes, warranty companies charge from $400 to more than $1,000 for the first year of coverage.

In addition to monthly or annual premiums, you’ll be responsible for a “trade service fee” of around $65 to $125 to cover the repair company’s initial visit. (Repairs are done by businesses that warranty companies hire to respond to claims.) Even if the warranty company denies your claim, you still pay the initial service fee.

Lots of Fine-Print Gotchas

The cost and range of the coverage from these warranties depends on the company issuing the coverage and the level of protection you choose. But even the most comprehensive plans include long lists of fine-print exclusions. Most are designed to limit the companies’ financial exposure from things that break often or that can be costly to fix or replace.

Think you’re covered if your roof leaks? Not with most plans. Is your refrigerator’s ice-maker on the fritz? Water heater sprung a leak? Those problems often aren’t covered either. The same goes if you have trouble with a window air conditioner, heating system humidifier, home security system wiring, or solar heating system. One plan we examined even excludes any damage that occurs during your oven’s self-cleaning cycle.

Even for covered repairs, you might find your claim denied if you don’t have records to prove you performed the manufacturer’s recommended maintenance or if the problem was caused by something other than normal wear and tear, such as a power surge. The same goes if the company decides the problem was caused by a preexisting condition that predated your coverage.

These are just some of the fine-print limitations that give providers wide latitude in deciding whether to cover a claim. And based on feedback from our members and the complaints on file with consumer agencies, warranty companies are all too eager to impose them.

Even when these companies actually cover claims, they often limit the amount they have to pay out. For instance, the sample contract we reviewed for America’s 1st Choice Home Club says the company won’t be liable for more than $500 per year for covered interior plumbing repairs and caps reimbursement at $1,500 per covered item for most other problems. Similarly, a sample contract for Fidelity National Home Warranty limits claims for water heaters and HVAC systems to $1,500 per contract term. To us, that’s skimpy stuff.

They Often Send Lousy Contractors

You call the warranty company and it dispatches a repair service with which it contracts. Warranty companies boast that their repair services are prescreened and do good work, but we wonder how thoroughly they vet them.

When we randomly selected 20 heating and air conditioning contractors that receive Checkbook’s top rating for quality, we found that none participated in any home-warranty programs and that these contractors overwhelmingly disdained these types of warranties.

Once a problem has been diagnosed, the plan provider—not you—decides whether to repair it, perhaps by using the cheapest parts available. Or they might replace it, with no guarantee you will get the same brand or even color, which can be an issue with a refrigerator, oven, or other appliance.

And since repair services work for the warranty companies—not you—they may be all too willing to find reasons the provider can use to deny your claim.

Even though the warranty companies select the technicians, the contracts of at least four policy providers we examined say they’re not responsible for the negligence or other conduct of the workers they dispatch. And based on the feedback we get from homeowners, there’s much reason to be concerned that these workers often do lousy work.

One homeowner told us the technician Choice Home Warranty dispatched to unclog her sewer got his snake stuck in the pipe. After cutting the line and leaving, he wanted her to pay $750 for him to come back and remove the rest. In response to the customer’s complaint to the Better Business Bureau (BBB), the warranty company pointed to its contract’s fine print—which stated that it isn’t responsible for any negligence by the service providers it sends. The contractor has a dismal D+ rating with the BBB.

Thousands of Dissatisfied Customers

Consumer agencies receive thousands of complaints each year about Choice Home Warranty and other warranty providers. Common gripes include claims being denied, repairs performed incorrectly, and repairs taking days or weeks to schedule or complete. Consumers reported that just reaching a customer service representative sometimes required waiting on hold for an hour or more. Some complained that if a covered item couldn’t be fixed, the company refused to pay the entire cost of replacing it and sometimes offered only the wholesale price.

American Home Shield, the largest U.S. home warranty company, has been the subject of nearly 10,500 customer complaints to the Better Business Bureau over the last three years.

Some warranty companies have been targeted by government action. In 2015, Choice Home Warranty and its principal executives agreed to pay nearly $800,000 to settle a lawsuit brought by the New Jersey attorney general that accused them of “using creative and deceptive means to deny their customers’ claims.” Among them, the complaint said, it required customers to provide maintenance records even when technicians reported that an item had been properly maintained or that lack of maintenance didn’t cause the problem.

But despite the settlement, the complaints continue. In the three years since Choice Home Warranty signed the agreement, the Better Business Bureau has received more than 4,600 complaints against the company.

What to Do

Skip buying a home warranty and be prepared to pay for repairing or replacing your appliances or home systems yourself. Overall, avoiding a home warranty will save you money—and let you decide the best way to address breakdowns and hire the right repair people.

For costly issues, such as replacing your heating system or roof, self-insure by maintaining a well-funded savings account or a dedicated product repair or replacement fund. Many contractors also offer payment plans (but make sure any interest rates are fair).

Home sellers often offer to purchase home warranties for buyers to allay anxieties about possible problems. Instead of accepting one of these policies, find out how much the coverage costs and ask the seller to give you a credit for that amount at closing. You can then use those funds to help cover any future problems, thereby avoiding a warranty’s fine-print exclusions, per-call charges, and other headaches.

If you still want to purchase a warranty, read the contract carefully. Determine exactly what is and isn’t covered, any limits on the amounts the company will pay, and the fee you’ll be charged whenever you call for service. And check out its complaint history with local consumer agencies. Since these companies garner so many serious complaints, there’s a good chance you’ll change your mind about buying a home warranty from any provider.

Also be cautious about websites that purport to rate home warranty companies; it’s hard to know how independent or accurate they are. For instance, the site “Top 10 Home Warranty Reviews” lists Choice Home Warranty—a company with a very poor track record—as its top pick, with a rating of “outstanding 9.9.” The website’s advertising disclosure acknowledges that it accepts money from the companies it features and that those fees may influence its ratings.