Caution for Buyers: Vital Information Regarding Warranty Companies

By skipashraful Updated October 24, 2023 Reviewed by skipashraful
Photo Credit: BiggerPockets

A Real-Life Experience with Warranty Companies

Here’s a true story: Our refrigerator, which was only four years old, suffered a sudden and unfortunate demise late last year. After multiple attempts to diagnose and repair it by the same service company, our warranty provider eventually approved the purchase of a brand-new fridge.

To our pleasant surprise, the process was relatively smooth, and we felt it was a form of financial karma for faithfully paying over $60 per month for six years to ensure we had the security of a warranty, not to mention an additional $75 for each service call.

Our need for service calls had been minimal, aside from an annual air conditioning issue and occasional concerns with other appliances and plumbing. However, when our contract reached its end, the company abruptly terminated our existing agreement, citing “too many service calls” – a euphemism for “We had to replace your refrigerator, and we need to recoup the $2,000.”

We were offered the option to reinstate our coverage, but at a cost 2 ½ times higher than our previous monthly payments.

Welcome to the realm of home warranties.

In reality, our six years leading up to the refrigerator replacement were relatively trouble-free. The service provided by tradespeople was generally satisfactory, and most issues were resolved in a timely manner. While being dropped by our warranty provider and having to scramble for new coverage wasn’t enjoyable, it certainly wasn’t the worst possible outcome with home warranties.

If you’ve recently purchased a new home and are contemplating whether to renew your warranty after the initial period or are considering a warranty for an older home, here are some factors to consider.

**Cost:** For many, the notion of paying a small monthly fee for protection against significant expenses like air conditioning issues provides peace of mind. But it’s worth asking yourself if you’d be better off putting that $60 (or so) into an interest-bearing account to save for unforeseen expenses.

Additionally, having coverage doesn’t guarantee that every issue will be resolved by the warranty company. Some problems may not be covered due to a lack of specific coverage or because the warranty company doesn’t include them. Moreover, home warranties often exclude items that haven’t been adequately maintained. In case of a denied claim, homeowners are still responsible for service fees and repair costs. Warranties also come with numerous exclusions and caps on repair costs per incident and per year.

**Coverage:** Many companies offer tiered warranty plans, with basic coverage in the lowest tier. Home warranty costs range from $350 to $600 per year, and additional fees for service calls can range from $50 to $125, depending on the type of contract you select.

**Rules:** Home warranty providers are often reluctant to replace expensive items if they can be repaired, such as aging air water heaters. This is especially true for high-value items. Most providers will make every effort to repair rather than replace air conditioning systems. It’s essential to check the fine print in your contract to understand what is covered and the maximum coverage limits for specific systems.

**Exploring Alternatives:** Before committing to a home warranty, it’s a good idea to explore other options. You may already have some coverage, such as one-year warranties on new home appliances and systems, or extended warranties provided by your credit card for newly purchased furnishings and appliances.

In the end, the choice of whether to opt for a home warranty is yours. There are numerous anecdotes and experiences, ranging from frustration to horror stories, about homeowners and their interactions with warranty companies. Consider your individual circumstances and preferences when making this decision.