Are Home Warranties a Scam?

While there are many reputable home warranty companies with satisfied customers who benefit from their services, there are some companies that take advantage of unknowing consumers.

Below we’ll explain why some people believe home warranties are a scam, which home warranty companies to avoid, what to do if you’re dealing with a home warranty scam, and how to find the best home warranty for your home.

5 reasons why people believe home warranties are a scam

You may have heard horror stories about home warranty companies that have been absolutely horrible to their customers. A dishonest company with a bad reputation and loopholes in their contract can create a sense of distrust among consumers and cause potential buyers to avoid these extended warranties altogether.

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

1. Unclear terms—Without carefully reading the terms and conditions of your service contracts, you may miss where it says that improperly maintained items aren’t covered or your refrigerator is covered only up to a certain amount.
2. Unexpected costs—Some companies may charge you a service fee every time your refrigerator breaks, while others will charge you a one-time service fee when repairing that specific appliance. Review your home warranty contract and determine if there are extra charges you should be aware of.
3. Difficult 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.
4. 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. One specific area of confusion is in regards to the appliance replacement policy. Some customers believe that if they have a faulty appliance, the home warranty company should replace it. However, most companies will simply pay you the depreciated value on the broken item, leaving you to make up the rest of the replacement cost.
5. Repair delays—The most reputable home warranty companies will send a repair technician 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 or if the company repeatedly ignores their phone calls.

Home warranty companies to avoid

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 some of the worst home warranty companies in the industry that have recently gone out of business due to their unethical business practices:

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

If you’re a victim of a home warranty scam, report the issue 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 (BBB)
• Your state’s consumer protection agencies

Tips to help you avoid a home warranty scam

To prevent being scammed by a home warranty company, there are a few steps you can take to help protect yourself, your home, and your finances.

• Review online user reviews and ratings.
• 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.
• Avoid companies with aggressive or inaccurate sales tactics.
• Get a home inspection before signing up for coverage to help you understand the condition of your systems and appliances.
• Review the terms and conditions in your home warranty contract before signing.
• Compare annual costs and service fees to make sure they align with the costs of other home warranty companies.

Questions to ask to ensure you’re not being scammed

Here 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 BBB rating?
• How many BBB complaints has the business resolved?
• What have other people said about the company?
• What does the claims process look like?
• Is there a cancellation fee?

Are all home warranties a scam?

Though some home warranty companies are dishonest and should be avoided, not all home warranties are a scam. Many reputable home warranty companies have satisfied customers, high business ratings, and positive reviews.

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.

Benefits of a home warranty

A home warranty can cover unpleasant (and unexpected) surprises when a major system or appliance breaks down. This home appliance insurance can also offer the following benefits:

• Since not all homeowners have the DIY skills or expertise to handle repairs on their own, a network of local, trusted technicians can perform the work for you.
• It can cover the repair and replacement costs of major appliances and systems like your plumbing, electrical, air conditioning, refrigerator, water heater, washer, dryer, and dishwasher.
• For home sellers, having a home warranty can protect your investment while your house is on the market.

Drawbacks of a home warranty

Though a home warranty can save you time and money, there are a few disadvantages to enrolling in a plan:

• There are coverage limits on how much a home warranty company can pay for a repair or replacement, leaving the customer to potentially pay a difference.
• Claims can be denied by a home warranty company if the item wasn’t installed correctly or hasn’t been properly maintained.
• If an appliance needs to be replaced, the homeowner may not have a say on what the make and model of the replacement looks like.

How to find the best home warranty company

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

1. Ask friends and family for recommendations
2. Read online reviews and check BBB ratings
3. Understand exactly what you need covered in your house
4. Compare home warranty plans
5. Verify that the home warranty company services your zip code
6. Carefully read the terms and conditions before signing a home warranty contract

Some of the best home warranty companies share the following qualities:

• Excellent 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.
• Easy 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, receiving one month free, a no-fault protection plan, or even no service fees, among other benefits.

Top 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. 

At House Method, we value trust and transparency with our readers, which is why we created an objective rating system and scored different home warranty providers according to our rating methodology. Our rating system involves a weighted, 100-point scale that scores home warranty companies on plans offered, coverage, state availability, cost, trustworthiness, customer service, and unique benefits.

Based on our research, here are several of the best home warranty companies in the industry:

Is a home warranty worth it?

A home warranty can be right for many homeowners because of the long-term cost value it provides. Many home 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.

Buying a home warranty may be a smart purchase for:

• Those on fixed incomes
• Those who don’t have an emergency home repair 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