Home warranties are relatively simple “products”, yet they quite often become the source of some confusion. It seems that the confusion stems from the language we use. This is because home warranty is insurance, and it’s related to your home, but isn’t home insurance. Home insurance is already a fixed thing — something that mortgage companies require you to have to make sure you’re protected against theft, fires, possibly floods and so on.
Home warranties are instead insurance for things breaking down. In particular, coverage tends to be for the home systems (i.e. HVAC, plumbing etc) and home appliances (washer machine, freezer etc). Both categories of items are not covered under home insurance, unless it was an external event or some kind of catastrophe that lost or broke them (you will have to read the fine print for what catastrophes it actually covers).
Home warranties are a little more mundane. They simply cover general breakdowns — natural breakdowns, not because you tripped over it and ripped its hinges clean off.
How a home warranty company works
Home warranty companies will require a monthly or annual payment for coverage. This is also known as the premium. This generally costs around $500 dollars per year, but it’s possible that you can get a little more bespoke coverage, perhaps even paying for each appliance/system individually, which could result in a smaller or larger overall premium.
As mentioned above, this is to cover items coming to the end of their lifespan or just generally, and unpredictably, breaking down through no fault of your own. This is important, because some companies will deny your claim if it looks like you have been mistreating it, or simply neglecting it maintenance.
The next thing you want to be familiar with is the deductible. This is the price you pay for a call out. Generally, this is a flat, fixed cost of around $50 to $100. So, your ~$500 in premiums isn’t the only cost you’ll be paying, but the cost this plus the deductible can still result in a much smaller amount if something major goes wrong.
Finally, home warranties will have limits. This may be $500, or it may be $2000. But the limit is the amount they will cover you for. If your $3000 HVAC system breaks down and it needs replacing, and you have a limit of $2500 and a deductible of $100, you will be paying $600 on this occasion, on top of your annual premium. Still, this looks like you’ve saved ~$2000.
What makes a good company
As you look through some of the more reputable companies, perhaps the 7 best home warranties in Florida, you will notice a pattern of what makes a good company. Generally, they will have a $0 transfer fee, as well as a healthy selection of a variety of plans. Furthermore, a good company should have 30 days free cancellation, which is mighty important if you get a bad feeling from the company from the beginning, or if your circumstances change. High cancellation fees should also be avoided.
Something a little less tangible, but equally as important, is making sure they have high contractor professionalism. It’s important to realise that most companies will not fix the breakdowns themselves. Instead, they hire contractors and pay them to fix it. This leads to you having to rely on not just one party in the event of an emergency breakdown, but two. What’s worse is that you have no idea who that other party is and on way of contacting them.
To avoid this, either look for companies that use their own technicians, or those that simply have good track records of having professional contractors. There’s no real way of finding this out other than to look at online reviews. Similarly, a good company should not be involved in many disputes. These are easy to spot, as many unfair claims are publicly covered on the news.
Which companies are more reliable?
You might be wondering: how am I meant to know how likely a company is to unfairly deny me a claim?
That sad answer is that you don’t. But the good news is that the more information you collect from your research, the more accurate your prediction will be. As mentioned above, online reviews and the news are great places to start when ruling out absolute no’s, and highlighting some possible good ones.
Generally, reliability correlates with longevity. Companies that have been about for 5 minutes do not deserve your trust yet, because many are fly by companies looking to scam you. Don’t be the guinea pig in this gamble.
It’s easy to see which companies have been operating longer, and you can even check their BBB rating (though don’t totally rely on that). Companies that have more detailed websites with lots of useful pages also tend to be more reliable, whether that’s a direct result or simply a correlation we do not know. In particular, look for detailed T&C. More detail may appear like they’re more likely to try catch you out. But it’s the opposite, they’re trying to avoid future disputes. It’s now just up to you to actually read the terms.
Lastly, a bad sign that a company won’t be reliable or truthful is if they have very pushy sales tactics. If you’re being put under pressure over the phone for example, stay well clear and find a company that has a better focus on customer service.
As mentioned above, it’s important to look through the terms and conditions thoroughly, and perhaps even get a second opinion. Take a good look at the deductibles, and you could perhaps even calculate how much you will pay out per year in the event of 4 claims on top of the premium.
It’s important to note that not all companies serve nationwide. In fact, although this may be unfair to presume, the best companies tend to serve nationwide (or near enough), whilst the scam companies tend to be more local. This does not mean however that a state-specific home warranty company is a scam, but it may not have the same level of resources, customer service, infrastructure and top-quality contractors.