How to Spot a Home Warranty Scam

INSURANCE - HOME INSURANCE
It could make sense to get home warranty coverage when buying a house. But make sure you don’t fall for a home warranty scam.
Updated Dec. 7, 2023
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If you’re in the market for a new home, it’s likely that you’ve heard of home warranty coverage. This is a type of coverage designed to help you save on repairs or replacements of appliances and systems within your new house. It can be helpful to have, but you have to be careful of scams when looking for coverage.

A home warranty scam could easily turn your homeowner’s experience upside down if you thought you had certain financial protections in place but didn’t really. In this guide, you’ll learn how to spot home warranty scams and potentially avoid them, as well as receive information about legitimate home warranty companies. This will help you navigate the world of home warranties and end up with the coverage you need.

In this article

How home warranty coverage works

Home warranty coverage is designed to give homeowners peace of mind when they buy a house. It’s typically suited for existing homes because the average age of the home’s appliances and systems will be older than a new build. Home warranties shouldn’t be confused with homeowners insurance, which is different.

Homeowners insurance typically covers natural perils and certain parts of the home, such as a tree breaking a window during a storm or a burst pipe causing water damage to your flooring. Home warranties, though, are not considered insurance policies. They’re service contracts that cover specific items in your house, such as appliances and essential home systems, if they need to be repaired or replaced due to normal wear and tear.

This could include your water heater, cooktop, oven, electrical system, heating, ventilation and air-condition (HVAC) systems, and more. Having this coverage could be especially important if you know you’re buying a house with older appliances and systems. This way you’re covered if an eligible item in your house stops working.

But remember to always read the terms and conditions of any home warranty contract. It’s common for home warranties to have deductibles or service fees attached to them, which typically cover the cost of sending a contractor out to diagnose and resolve issues. But bad home warranty companies could include hidden costs in their contracts or make it difficult to submit a claim for repairs.

How to spot a home warranty scam

Keep an eye out for these red flags as you learn to spot a home warranty scam:

  • The home warranty company isn’t actually registered in your state. Home warranty companies have to be authorized to do business in your state to be legitimate. This may include authorization from your state’s insurance department. If a company doesn’t have this authorization, it could be a red flag.
  • The claim process is unclear or shady. Check a company’s website or speak with a representative to see how the claims process works. If it’s hard to understand how submitting a claim works, you might want to ask for clarification or look into other companies. It should be easy for you to understand home warranty coverage and exclusions, as well as how the claim process works and how long it typically takes to successfully submit a claim.
  • There’s no option to get in contact with a human. If you can’t find any means of contacting a human representative at a company, either via phone call, email, or online chat, it’s likely because the company doesn’t want to be contacted. This is a big warning sign for you because a good home warranty company will typically offer options to get in touch with customer service. You don’t want to be stuck without help if you have questions to ask or you have an urgent issue if something essential breaks and you have to pay for emergency home repairs.
  • The company has received lots of customer complaints. Check for reviews of home warranty companies online. If their consumer reviews are terrible and the company is flagged as a scam on multiple reliable websites, you likely want to avoid them.
  • You received a call about home warranty coverage randomly. If you receive a call out of the blue about someone offering you home warranty coverage, it could be a scam. This is similar to random calls from people asking about your car insurance policy or homeowners insurance.

How to avoid falling victim to a home warranty scam

Consider these helpful tips so you don’t fall victim to a home warranty scam:

  • Talk to your real estate agent. An experienced real estate agent likely knows the ins and outs of everything to do with buying a home, including how home warranties work. Your real estate agent can likely recommend a few reputable companies if you’re interested in a home warranty, though it still makes sense to do your own research as well.
  • Do your due diligence. Call your state insurance department’s office to see which home warranty companies are authorized in your state. Research each company by checking their websites, online reviews, and seeing how their claims processes work. Make sure they have easy ways to be contacted in case you have questions or need to talk to someone because of an emergency.
  • Check consumer review sites. Websites like the Better Business Bureau, Consumer Reports, ConsumersAdvocate.org, Trustpilot, and others can help you get a better idea of what people think of the companies you’re researching. If you’re not finding much information about a company, the business might be too new or it may not be a legitimate business at all.
  • Talk to company representatives before you sign on the dotted line. Before signing a home warranty contract, be sure you talk to a human representative from the company. It’s important to double-check there are actual people available to help you if you need it down the road so you’re not stuck without help. Also, it’s an ideal opportunity to ask a real person about the claims process, any potential service fees, and how the company hires contractors.
  • Read the fine print. Reading the fine print is important for any contract, including the service contract for a home warranty. This will tell you what’s covered under the contract, so if it comes time to submit a claim, you know what to expect to pay yourself and how much the home warranty company will pay. For example, your ductwork could be covered, but the vent coverings might not be. And there might be a limit on how much the company will pay per repair or replacement, which should also be in the fine print.
  • Don’t offer up your personal information until you confirm the company is legit. The best thing to do with random calls about insurance policies or coverage is to ignore them because they could be scams. But if you’re looking for a home warranty company, you might take down the information from one of these random calls so you can look them up later. Just be sure you don’t give out any personal information until you do your due diligence.

3 legit home warranty companies

If you’re looking for a legit home warranty company, these home warranty providers operate in most states nationwide and offer competitive plans in both pricing and coverage.

1. American Home Shield

American Home Shield was started in 1971 and now has more than 50 years of experience providing new homeowners with reliable home warranty coverage. Home warranty plans include a systems plan, an appliances plan, and a combo plan.

The systems plan covers your home’s systems, such as the air conditioner and ductwork, the electrical, garbage disposals, and water heaters. The appliances plan covers major appliances such as refrigerators, ovens, clothes washers and dryers, and garage door openers. The combo plan covers both systems and appliances. Add-on coverage is also available for additional items, like home electronics, pools and spas, and septic systems.

American Home Shield pays up to $3,000 per covered item for diagnosis and repairs or replacement of appliances. The service fee with this company ranges between $75 to $125.

2. AFC Home Club

AFC Home Club has been in business for more than 11 years and was named an Inc. 5000 company in 2018. Home warranty plans include the platinum plan, gold plan, silver plan, and systems plan. The systems plan focuses on coverage for your home systems, including the HVAC systems, plumbing system, and ductwork. The silver plan is for appliances like your refrigerator, dishwasher, and oven.

The gold and platinum plans include both your home systems and appliances, except the gold plan doesn’t include ice makers, built-in microwaves, or plumbing stoppages, whereas the platinum plan does. Additional coverage for add-ons like sump pumps and central vacuum systems is also available.

AFC Home Club pays up to $2,000 per covered appliance for diagnosis, repairs, or replacement. Service fees range from $75 to $125.

3. Choice Home Warranty

Choice Home Warranty was founded in 2008, which means the company has more than 13 years of experience in the home warranty industry. Home warranty plans include a basic plan and a total plan. The basic plan covers your typical home systems and appliances but does not include the air-conditioning system, refrigerator, or clothes washer and dryer.

The total plan includes all your typical home systems and appliances, including the ones not covered by the basic plan mentioned above. Optional coverage for pools and spas, well pumps, second refrigerators, and other items is also available.

Choice Home Warranty pays up to $3,000 per contract item for diagnosis, repairs, or replacement. Service fees may depend on your service contract but are typically around $85.

FAQs

Are home warranties worth buying?

Home warranties might be worth buying if it makes sense for your situation. If you buy a home with new appliances and home systems, getting a home warranty might not be worth it. The likelihood of a new appliance or home system failing is low, so you could potentially be paying for coverage you don’t need.

But if you buy an older home, a major appliance or home system failing could cost you thousands of dollars to hire your own contractor to complete the repairs. In this case, having a home warranty to help cover those costs would likely be worth it.

Are homeowners insurance and home warranties the same thing?

Homeowners insurance and home warranties are not the same thing. Although your homeowners insurance might cover damage to your home from wind or hail, a home warranty is designed to cover necessary repairs or replacements on your home’s appliances and systems. This could include your HVAC systems, dishwasher, refrigerator, and your plumbing.

Who are home warranties right for?

Home warranties are right for anyone who thinks they need one. This could include a new homebuyer who wants the peace of mind a home warranty can offer. Or you might want a home warranty because you’re buying a house with older appliances and home systems. It could make sense to have this coverage in case something major fails and you’re not on the hook for thousands of dollars.

But if you’re buying a new house with new appliances and systems, it likely wouldn’t make sense to get a home warranty because the chances of something failing would be small.

Are there any home warranty coverage exclusions?

Home warranty coverage often comes with many exclusions. For example, pools and spas aren’t typically covered in a home warranty contract, but it’s possible to include this coverage for an additional cost with certain companies. Other add-ons might also be included.

Additional exclusions may include certain parts associated with home systems or appliances in your coverage. For example, your pool’s plumbing and electrical systems might be covered, but the jets and lights aren’t included. Home warranty coverage often excludes pre-existing conditions if they are known about at the time of sale. Be sure to check the fine print of your home warranty to see what your coverage includes.

The bottom line

If you’re buying a home and thinking about home warranty coverage, make sure you do your due diligence and research the available companies in your area. This will help you avoid any potential home warranty scams out there and sidestep the financial headaches they can cause. In addition, doing proper research can help with budgeting by leading you to the home warranty companies with the best offers.

If you fall into a situation where you don’t have home warranty coverage or it’s not enough and you need to make updates on your house, consider a home improvement loan. These loans can help you get the money you need to improve your home, whether it’s dealing with an old hot water heater or getting all new kitchen appliances.

Choice Home Warranty Benefits

  • First month free
  • Protection for unexpected expense
  • 24/7 claims hotline
  • Network of over 15,000 technicians

Author Details

Ben Walker, CEPF, CFEI® Ben Walker, CEPF, CFEI®, is a Senior Credit Cards Writer at FinanceBuzz. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.

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