Are Home Warranties a Scam?

By Deanna Kane

There are many reputable home warranty companies that have happy customers who benefit from the home repair and replacement cost savings that comes with having a home warranty. However, there are some companies that have taken advantage of unknowing consumers. 

Different from an insurance policy, a home warranty benefits consumers by protecting them from the unexpected expenses that are associated with repairs to appliances (i.e., washers, dryers, refrigerators, garage door openers, etc.) and other home systems (i.e., air conditioning, heating, plumbing, electrical, etc.). Also known as home appliance insurance or home repair insurance, home warranties save homeowners the headache of vetting a repair company.

This article will explain why some people believe home warranties are a scam, the worst home warranty companies in the industry, how to deal with a home warranty scam, and how to find the best home warranty company for you.

Top reasons why people believe home warranties are a scam

Some people have horror stories about their home warranty experience and believe the entire home warranty company industry is a complete scam. A dishonest company with a bad reputation and tons of loopholes in their contract can create a sense of distrust among consumers and cause potential buyers to avoid home warranties altogether.

Below are the top reasons people often believe home warranties are a scam:

  • Unclear terms—Most home warranty companies offer different levels of plans that cover appliances, systems, or a combination of both. Some companies cover pre-existing conditions, while others do not. Carefully read through the terms and conditions to avoid any potential scams or misunderstandings.
  • Unexpected costs—Review your home warranty contract and look for additional charges that you may incur from the home warranty provider. Home warranty companies have different cost structures by state, so it’s important to review a personalized contract before signing so you’re not reviewing pricing for another state.
  • Customer complaints—The majority of the Better Business Bureau (BBB) complaints and poor customer reviews are a result of denied claims and misunderstanding of coverage. It’s important for home warranty policy holders to fully understand coverage and to carefully read the fine print to learn what’s excluded before signing any agreements.
  • Cancellation process—The cancellation process should be straightforward and easy to accomplish. Many home warranty companies will require a 30-day written notice in advance of cancelling.
  • Claim denials—Since it’s up to the home warranty company to determine if a claim is approved or not, denied claims can lead to frustration among policyholders. Having a firm understanding of the terms and conditions can help eliminate the frustration that comes with receiving a denied claim. One area of confusion with claim denials is regarding the replacement policy. Many home warranty companies will replace the broken item instead of repairing it if the repairs are too costly. Be clear on the replacement policy, so you don’t end up with a warranty that only gives you the depreciated value on the broken item.
  • Repair delays—The most reputable home warranty companies will send a repair technician immediately after the claim is received. Most companies will send a tech to your home within 48 hours of your initial call. Customers may feel scammed if they file a claim and go days without having a technician come to their house.

Worst home warranty companies

Some of the worst home warranty companies have a track record of scamming their customers by creating false charges on their credit card, not addressing issues in a timely manner, having poor customer service, and charging too much in annual premiums and service fees.

Below are a few home warranty companies that have recently gone out of business:

Service America

  • Poor company performance
  • Couldn’t handle industry competition

Endurance Home Warranty

  • Closed down after being in business since 2017
  • Consumer review sites received had many negative reviews about the business
  • The BBB received multiple negative complaints that were unable to be resolved since the company’s email and phone number went unanswered

Allied Home Warranty

  • Customers had issues submitting claims to phone agents
  • Poor overall customer service and repair technicians

American Home Guard

  • Complaints of not paying contractors for the work completed
  • Poor customer service
  • Complaints of the company not sending out a service technician after a claim was filed

Secure Home Warranty

  • The company charged customers for service contracts but didn’t pay for the repairs
  • Customers unable to file complaints, and the ones who did had complaints go unanswered

What to do if you’re dealing with a home warranty scam

If you’ve discovered that you’re a victim of a home warranty scam, it’s important to report the scam to a law enforcement agency. This step is crucial because there are likely other people who have been scammed, and reporting the home warranty company in question helps these agencies collect accurate data on the number of people affected. 

You can report a home warranty scam to: 

  • Your state’s department of insurance
  • The Attorney General’s office
  • The Better Business Bureau
  • Your state’s consumer protection agencies

Are all home warranties a scam?

No, not all home warranties are a scam. Many reputable home warranty companies have happy customers, high business ratings, and a network of professional and trustworthy contractors. These companies have responsible customer service teams, are responsive to claims, and send service technicians to their customer’s homes in a timely manner. These companies also have clear terms and conditions and expectations on what can be repaired or replaced while under warranty.

Tips on avoiding a home warranty scam

While avoiding being a scam victim can’t be entirely prevented, there are steps you can take to help protect yourself, your home, and your finances. Before signing with any home warranty company, conducting your own research is the most important part. A few steps to take include:

  • Review online user reviews and ratings.
  • Check the company’s rating and complaints filed with the BBB. 
  • Consider how long the company has been in business.
  • Check with your state’s Department of Insurance or Attorney General’s office to find out if any complaints have been filed with the home warranty company.
  • Search for a home warranty company through the National Home Service Contract Association.
  • Conduct research on the best home warranty companies and familiarize yourself with the home warranty companies that are out of business.
  • Avoid companies with aggressive or inaccurate sales tactics.
  • Review the terms and conditions in your home warranty contract to ensure you understand them.
  • Compare annual costs and service fees to make sure they align with the costs of other home warranty companies.

The most reputable home warranty companies have been in business for several decades, have established a good industry reputation, have a transparent claims process, offer flexible plans, and provide 24/7 customer service.

Some of the best home warranty companies share the below similar qualities:

  • Customer experience—The best home warranty companies offer 24/7 customer support services online or through a customer phone number.
  • Transparency—Top-rated home warranty companies are transparent about plan details, coverage limits and exclusions, and pricing.
  • Flexible home warranty plans—Having a variety of plans allows policyholders to select the systems and appliances they want protected and gives them flexibility to choose from multiple options.
  • Claims process—The top home warranty companies have a straightforward claims process, with reasonable service fees and fast turnaround times.
  • Additional benefits—Some home warranty companies will offer their customers additional perks, such as the ability to add on extra services, the first month free for signing up, a no-fault protection plan, or even no service fees, among other benefits.

Questions to ask to ensure you’re not being scammed

While you can’t completely prevent being scammed by any company, there are several questions you can ask to help ensure you won’t become a victim of shady business practices.:

  • How long has the home warranty company been in business?
  • Does the home warranty company have a high Better Business Bureau rating?
  • How many BBB complaints has the business resolved?
  • What have other people said about the company?
  • What is covered in the home warranty plan?
  • What does the service process looks like?
  • Is there a cancellation fee?
  • How long is the home warranty contract length?
  • Is a home inspection required before home warranty coverage begins?

How to find the best home warranty company

Here are several steps you can take to find the best home warranty company for you:

  • Verify that the home warranty company services your zip code
  • Ask friends and family for recommendations
  • Read online reviews and check the Better Business Bureau ratings
  • Understand exactly what you need covered in your house
  • Read the terms and conditions very carefully before signing a home warranty contract

Benefits of a home warranty

Since many home related expenses are unknown, a home warranty can cover unpleasant (and unexpected) surprises. A home warranty can offer the following benefits:

  • Save you money on home repairs and replacements
  • Take away the fear of unknown pricing if something breaks
  • Provide peace of mind knowing that these maintenance costs will be covered under warranty
  • Cover the repair and replacement costs of plumbing systems, HVAC systems, kitchen appliances, washing machines, clothes dryers, and other major home systems and appliances

MORE: Compare the top home warranty providers in the industry

Is a home warranty right for you?

A home warranty can be right for many homeowners because of the long-term cost value it provides. Many systems and appliances aren’t protected under homeowner’s insurance, and as a general industry standard, most items have a lifespan of approximately 10 years and may need maintenance in between. The manufacturer’s warranty on a system and appliance may only be relevant for a limited time after purchase, so a home warranty can offer protection in the instance an appliance breaks down or home systems run into issues.

Buying a home warranty may be a smart purchase for:

  • Those on fixed incomes
  • Those who don’t have home repairs factored into their monthly budget
  • Landlords who own rental properties
  • First-time homebuyers who are used to contacting the rental unit’s maintenance staff to fix repairs
  • A home seller who can transfer the pre-existing warranty to a new buyer

Satisfied home warranty customer reviews

Below are a few TrustPilot reviews from customers who have been satisfied with their home warranty purchase:

Rosemary Hardy Plunkett, First American Home Warranty:

The technician was very knowledgeable, very polite, efficient and on-time. The service was wonderful. Any question was answered to my satisfaction.” 

Joanne Holt, Choice Home Warranty

I had a water leak from my hot water heater that was running water outside. I called Choice that night and filed a claim. I received a text message the next morning with the name of the company and tech name with the time of arrival that day. Problem was fixed within 45 minutes. Tech was courteous and explained what the problem was.

Anton Luru, American Home Shield

Well I have had AHS for about 20 years and have only used them a couple of times and have never really had a problem getting my repairs taken care of. I am now in the process of selling my home and found a leak coming out of the bathroom floor into the crawl space. I contacted AHS, informed them of the situation, and put a request in for service. The plumber contacted me that day and the work was completed the following day to my satisfaction. The only reason I did not give 5 stars is when I made my phone call the individual on the other side of the line, though pleasant, was very hard to understand. I would recommend using their online service request.

Home warranty companies to consider

The most reputable home warranty companies have been in business for several decades, have established a good industry reputation, have a transparent claims process, offer flexible plans, and provide 24/7 customer service. 

Here are several of the best home warranty companies in the industry:

  • Offers an appliance, systems, or combination plan
  • Has more than 45 years of experience
  • Gives customers the ability to request service 24 hours a day and grants access to a network or more than 15,000 contractors

  • Offers three levels of plans to accommodate different budgets
  • Gives customers the ability to submit a claim 24 hours a day
  • Eliminates the search to find a reputable, trustworthy contractor

  • Provides four different plan levels to choose from
  • Accredited with the Better Business Bureau and Consumer Affairs
  • Plans include family protection packages with an Emergency Alert Network, credit monitoring, and deals savings
  • Offers a life of membership labor and parts guarantee

  • Has a devoted staff of local service providers ready to help
  • If the item can’t be fixed, a technician will replace it
  • Available across 49 states
  • Offers two comprehensive plan levels

  • Easy sign up with no credit check
  • All of the authorized technicians are pre-screened, licensed, and insured
  • Affordable coverage eliminates worries about the high cost of repairing or replacing your home’s appliances or systems

Frequently asked questions

Which home warranty companies are scams and should be avoided?

The following home warranty companies have scammed customers in the past and have recently gone out of business: Service America, Endurance Home Warranty, Allied Home Warranty, American Home Guard, and Secure Home Warranty.

How much does a home warranty cost?

While the cost of a home warranty varies by company, most home warranty companies will charge an annual premium, as well as a service fee any time a claim is approved or a repair technician is sent to your house for service.

What does a home warranty cover?

Most home warranties cover the cost of repairs and replacements for major home appliances (i.e., washers, dryers, refrigerators, garage door openers, etc.) and home systems (i.e., air conditioning, heating, plumbing, electrical, etc.).

Is a home warranty worth it?

A home warranty can save you the trouble of finding a service technician and paying for expensive repairs and replacements out-of-pocket. Because of the security it offers, a home warranty can be beneficial to all homeowners.

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