Fees and fine print
When you have a problem with an appliance or home system, warranty companies promise to dispatch a professional to make things right.
If the technician can’t fix it, the company promises to buy a replacement product. Sounds great, but sales pitches can make it seem as if you’ll never pay for a home repair again. It’s not that simple.
For most homes, warranty companies charge from $400 to more than $1,000 for the first year of coverage, depending on the company, the plan and where you live. For example, for one Chicago address Checkbook checked, American Home Shield charges $480 for an annual plan that covers either a home’s appliances or systems, such as electrical, heating and plumbing equipment. It charges $600 to protect both. The cost will be higher if the homeowner adds coverage for other items, such as a swimming pool, spa, or well or septic pump.
In addition to monthly or annual premiums, you’ll be responsible for a “trade service fee” of about $65 to $125 every time you call for service. (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 service fee, based on the companies and plans Checkbook examined.
Even the most comprehensive plans include long lists of fine-print exclusions. Most limit the companies’ financial exposure from items that break often or can be costly to fix or replace. For example, refrigerator ice-makers break down a lot, which is why many plans exclude them. And the cost of repairing or replacing heating and plumbing systems can be thousands of dollars. That’s the reason plans often limit the amount they’ll pay for those items or overall.
Think you’re covered if your roof leaks? Not with three of the six companies Checkbook examined. And you’ll need to check the fine print on complicated items such as water heaters, window air conditioners and solar heating systems. Some companies cover them, some don’t, and some might cover parts of an appliance but not others. One plan Checkbook examined 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. With most companies, the same goes if the provider determines 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. Based on feedback from our members and the complaints on file with consumer agencies, warranty companies frequently impose them.
Even when companies cover claims, they often limit the amount they have to pay out. All six companies Checkbook looked at capped the amount they’ll pay for at least some items. For instance, a sample contract 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 be clear, this is not a 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 choose the contractors
Warranty companies boast that their repair contractors are prescreened and do good work, but it is generally unclear how well they vet them. Checkbook emailed several major companies and asked for details on how they select their affiliated contractors. Only American Home Shield responded, with a spokeswoman saying by email that contractors must comply with insurance requirements, complete and maintain background checks, undergo training, and meet other criteria.
Although the spokeswoman said the AHS removes contractors for whom it gets too much negative customer feedback, the company did not provide details on the threshold for such expulsion or how often that occurs. When Checkbook randomly selected 20 heating and air-conditioning contractors that receive its top rating for quality, it found that none participated in any home warranty programs and that these contractors overwhelmingly disliked these types of warranties.
Once a problem has been diagnosed, the plan provider decides whether to repair it. Or the provider might replace the item, with no guarantee you will get the same brand or color, which can be an issue with appliances such as refrigerators and ovens.
The contracts of at least four policy providers Checkbook examined say they’re not responsible for the negligence or other conduct of the workers they dispatch. And based on the feedback Checkbook gets from homeowners, that’s cause for concern.
One homeowner told Checkbook that 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 BBB, the warranty company pointed to its contract’s language, which stated that it isn’t responsible for any negligence by the service providers it sends. The contractor has a dismal D-plus rating with the BBB. Choice Home Warranty did not respond to Checkbook’s request for comment.
Consumer agencies receive thousands of complaints each year about warranty providers. Common gripes include claims being denied, repairs being 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 more than 10,765 customer complaints to the BBB over the past three years. In response to a Checkbook email about the complaints, the AHS spokeswoman said that of the 11 million service requests the company responded to over the past three years, fewer than 1 percent were escalated to the BBB. “We work directly with the BBB to address and resolve customer matters as they arise,” she said.
This doesn’t mean that you can’t come out ahead with a home warranty. Based on the customer reviews we’ve seen, some customers say the coverage saved them money. For instance, on the BBB website, there are 1,223 three-, four- and five-star reviews for American Home Shield. For instance, one customer, who gave the company a five-star rating, said the plan had paid for itself in just five months, during which he made two claims. But there are about twice as many one- and two-star reviews, and the company’s overall review rating is just over two stars.
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.
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.
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 (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 avoiding a warranty’s exclusions, per-call charges and other headaches.
If you still want to buy 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.
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 Top10HomeWarrantyReviews.com lists Choice Home Warranty — a company with more than 4,600 BBB complaints in the past three years — 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.
In a email response to our questions, Aviv Canaani, head of marketing for Natural Intelligence, which operates the website, said the site makes it clear that the payment of advertising fees influences a company’s rating, along with such factors as a company’s popularity and customer trust. “Visitors on our website can view the disclaimer in a very clear manner as it appears at the top of the page,” he said. He did not say whether Choice Home Warranty paid an advertising fee; nor did he disclose how the website arrived the company’s top rating.
Washington Consumers’ Checkbook magazine and Checkbook.org is a nonprofit organization with a mission to help consumers get the best service and lowest prices. We are supported by consumers and take no money from the service providers we evaluate. You can access all of Checkbook’s ratings and advice free of charge until May 25 at checkbook.org/washingtonpost/warranties.
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