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Home Warranty – Friend or Foe?

Home Warranty – Friend or Foe?

Home warranties have never been as popular as they are now, with American Home Shield, the
largest provider in the USA, boasting more than 1 billion US dollars in sales last year. The
market is flooded with various companies offering the service from Sears to newly-founded
companies like Total Home Protection. If 10 years ago you would have had maybe one or two
companies to choose from that serves people from your State, currently you can find an
abundance of options whether you are in Arizona or Maryland.

At the same time, there is an increasing level of criticism towards home warranties. While some
journalists and bloggers claim they are useless and perhaps scammy by nature, others, say it
depends on your provider.

Here is why people believe home warranty is not a good idea:
1. There are a lot of complaints of disgruntled clients all over the news and the internet.
2. Companies are notorious for incomprehensible T&C’s.
3. All insurance products, are in one way or another, making money for the insurer, and
thus, on average, don’t save money for customers.
4. There are lawsuits against home warranty companies and even an attempted class
       action.
5. It’s not that cheap, all in all. There are plans that cost more than $1,000 a year (on
average it’s $300-$400 for the simplest plans).
6. The cost of a service call is up to $100. Sometimes, for $100 you would get a repairman
instantly.
7. It can take 72h until you get the repair you require. If it’s something critical, you are likely
to call in someone sooner and not utilize your home warranty policy.

And here’s why people think a home warranty can be useful:
1. It protects you against unexpected expenses. If something expensive gets broken and
you are unlikely to have enough cash to repair it, the home warranty gets that covered
for you and all for a $50-$100 service call (with some companies not charging any
deductibles!).
2. There are probably more than a million Americans who had a home warranty at one
point in time. If it was indeed a scammy product it would have been stopped by the
regulator by now. American Home Shield, the largest provider, is a public company, so it
undergoes ever deeper inspection than other private companies.
3. There are also positive reviews of home warranty companies online. It’s true that most of
them are negative but that’s just human nature. People tend to complain more than they
tend to give words of encouragement.

4. At the end of the day the T&C’s provided by each company are very clear and
understandable (or at least should be such). You get a complete understanding of what
you’re paying for. Most people who complain did not bother reading through it or
understood when to use their home warranty policy.
5. The best home warranty companies guarantee certain things that make their policy
worth buying. For example, most companies will replace a broken appliance or system
up to $500, but some companies will pay up to $1,500 per replaced item. Another
example would be the response time – while some companies guarantee a response to a
call within 72h, other companies adhere to stricter timelines of up to 48h from the
moment the call has been received.

To summarize, there is not really much more to be said about home warranties. Some home
warranty companies are definitely bad and unreliable, and the others are more trustworthy but it
does not indicate the product offered is indeed going to save money for whoever uses it.

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