Understanding Your Home Warranty Contract

A residential service contract (also known as a home warranty) is just that—a contract between the property owner and the contract issuer. And, as such, it is important to understand the terms of the contract, so that you know the coverage it provides. Therefore, the purpose of this article is to provide you with a basic understanding of home warranties.

What the home warranty typically covers

The standard home warranty provides coverage for the following systems: air conditioning (especially in the South and West), heating, plumbing, electrical, water heater, dishwasher, stove/oven/cooktop, garbage disposal and built-in microwave. The average price for one year of coverage is $375 to $425 with a trade call fee of $60 to $100. The property owner can buy optional coverage for items such as refrigerator, washer/dryer, garage door opener, stand alone icemakers, wine coolers, pool, spa, square footage over 5,000 sq ft and so on.

Lastly, many home warranty providers offer “premium upgrades” which typically cost from $35 to $75 and extend the basic terms of your standard warranty to cover more potential repair costs. For example, if the basic coverage did not include faucets and showerheads, then with the premium upgrade, the basic coverage is extended to include faucets and showerheads. It is important to understand what is included in these types of upgrades. Typically, they are a good investment to make for the coverage provided.

In addition, home warranty coverage is limited to items that are in good working condition as of the start of the contract, are located within the foundation of the house and are reported to the provider before the contract expires.

And coverage only applies to repairs caused by normal wear and tear.

What the home warranty typically does not cover

I know what you are thinking—here comes the catch! Well, yes, these providers are selling a $375 product, and, in order to do that economically, they require coverage to be limited in particular ways. In case you are starting to drift off and think about your grocery list or pedicure appointment, this is the important part!

Home warranty coverage is typically limited in the following ways. First, systems must be maintained properly. For example, you’re A/C system—which we use about 340 days per year in the South—needs a once a year maintenance visit. (For some reason, we change our oil every 3,000 miles, but we expect our air conditioner to work for 15 years without touching it…) So, don’t ignore that A/C—keep it well maintained.

Second, coverage does not apply to the brand name, just the ratings, size and efficiency of the system. This means your Trane or Goodman Air Conditioner will be replaced with, or covered up to the cost of, the same size unit but not the same brand, although you can pay the difference if you prefer a more expensive brand. This is also true with kitchen appliances—don’t expect your Sub Zero to get replaced with a Sub Zero! (What did you expect for a $65 option?)

Third, home warranties do not cover secondary or consequential damages. So, if your water heater fails, and sends 50 gallons of water into your living room, the home warranty company would be required to repair the water heater but not the secondary damage to the house.

Fourth, coverage does not apply to systems that are already covered by a manufacturer’s warranty.

Finally, the typical home warranty does not provide coverage for code upgrades, permits, modifications, access/restoration costs and equipment disposal costs, although some of these items may be included in the warranty’s “premium upgrade”. In other words, you should expect to pay a significant amount for non-covered aspects of major home system repairs and replacements. Although some of these extra costs are included in the “premium upgrades” offered, the standard home warranty does not cover the costs to bring your mechanical systems up to code, to dispose of your old equipment, to pay for required permits or to modify the new equipment to work with the existing equipment. In addition, costs for access and restoration are not covered by the standard home warranty policy.

I hope this brief overview has been helpful!

Important Home Warranty Tips

With most home insurance policies expiring in the first few years after closing a home owner warranty is a nice posterior appendage to your continued security. Why not safeguard your home and family as you face the secondary homeowner years the era when a good majority of systems and appliances fall prey to age and deterioration. Homeowner warranties are touted by many for the areas they pick up in where your home owner insurance leaves off.

Here are the top 5 things you should know when shopping for a home warranty.

Unauthorized Repairs or Reimbursement

Calling a repair company and having a problem fixed—without prior approval from your home warranty—is not a good idea if you are expecting to be reimbursed. You should notify the home warranty company of a repair issue first, so they can send out an authorized service provider. On rare occasions, a home warranty company may provide you with an authorization to have the service performed by a contractor of your own selection.

Pre-existing Conditions, Improperly Installed or Mismatched Equipment, and Poorly Maintained Systems

Be sure home systems and appliances are in good working order upon the start date of a warranty. Any malfunctions or problems that fall into the above categories typically are not covered. However, some providers are now offering upgrades that include coverage for these issues that are normally denied. Home warranty plans typically only cover repairs or malfunctions caused by normal wear and tear.

Indirect, Special, or Consequential Damages

We recommend calling 911 if your home is on fire—not your home warranty company; they are the ones with the hose. This is another way of saying: home warranties do not cover damage from weather, accidents, acts of God, mold, fungus, structural changes, vandalism, pests and pet damage. So, if your water heater spills 50 gallons of water into your client’s house, the home warranty owes your client a new water heater, not a new carpet. Oh yeah, they also don’t typically cover damage caused by attempted repairs—so keep your husband away!

Items Outside the Perimeter of the Home

With the exception of your pool/spa and HVAC equipment, items outside the perimeter of your home are not typically covered by your home warranty plan. Some people are surprised to learn that the plumbing leak in the yard is not covered. But, it is a “home” warranty and not a “yard” warranty, and most home warranty contracts exclude these types of leaks from coverage.

Read the Contract

Do you read the back of your Valet ticket? We don’t either. But, we should. Unfortunately, you shouldn’t assume home warranty contracts are all the same. We encourage you to read and get an understanding of your home warranty contract, so you can use it more effectively. Yes, about 80% of the contracts of the various home warranty providers are similar, but that 20% difference can be substantial!

American Home Shield Overall Rating

I found their website a bit confusing to use, but I stuck with it and got a price quote. WOW! I was surprised at the extremely high rates they had. I have called around and their pricing was the highest so far. So while I cannot review their home warranty service, I can review their pricing.

- Jimmy D.

I’ve had two issues with this company. My hot water heater broke within a few months of moving into my new house. That was not an emergency so it took them over a week to get someone out to my house. The first person that came was just for an inspection to tell me that my water heater had rusted out which I told AHS on the phone. It then took another week to get a new water heater but the contractor that came “did not know” he was supposed to bring it with him so he did not have it. They finally sent someone on a weekend and he did not have the right parts to do the vent so he used a coat hanger to adjust it. On top of paying the $60 service fee, I also ended up paying over $300 for “code upgrades.” I called them about this several times and never had a beneficial response.
The second issue I have is in Mobile, AL in August my air conditioner broke on a 100+ degree day and they informed me that, although that was indeed hot, it was not considered emergency conditions so I would have to wait for their contractor to contact me to schedule an appointment. I only have this warranty because it came with the house and I will not be renewing it.

- Justin, GA

A/C has been broken since 13 July 2010. Still not fixed. Have called and called AHS (to include Customer Relations Supervisor-James Leslie, he won’t return calls) with no resolution. It has been determined that the evaporator coil is bad, so they want to replace air handler. They wanted to charge me $525 on top of my warranty premium. After questioning the charges, I’ve gotten it down to $85.50 which is for the disposal. I wouldn’t be paying that but if I want my A/C fixed, I have to agree to that. The biggest charge of the $525 was for the plenum. And, it specifically states that plenum is covered. This company is a SCAM AND RIRPOFF. Try another home warranty company.

- Christian, IL

I’ve been with AHS for over 10 years and most of the time have had good experiences. I’ve used it for a number of appliances, plumbing, electrical issues and always felt that the outcome, whether a replacement or a repair, was very fair. I’ve had no problems with contacting the company to request service and the service people sent out are usually on time and curteous. But I do question the quality of the service on some repairs. The most recent service was with my furnace, which had to be replaced but I found out that AHS would only pay for a really cheap, stripped down system. And I couldn’t find any background/experience info on the company sent by AHS so I didn’t trust their work. I ended up taking the cash payout (which unfortunately was one fourth of the actual cost)so I could go with a reputable/well known company. This was the only experience I found unsatisfactory.

- Noell, MO

I recently filed a cliam for an airconditioner coil replacement, which was covered under my warantee. When I recieved the quote for the “excess” charges not covered it amounted to what the cost of a complete coil replacement from a competitive company (non AHS) would have been with out the warantee claim. in reality, AHS has no out of pocket expenses and the complete cost was passed on to me the comsumer. At this point, I will more than likely not renew this agreement with AHS.

- Angela, CA

We bought our 1000 sq ft home in April. We purchased a warranty with American Home Shield. The air conditioning failed in June and the nice fellow from Fuse came through and fixed it immeidately, within a few days… The air conditioner failed in the 3rd week of July and we are still without air conditioning. It has been in the high 90’s and low 100’s… My work has gone to working nights to avoid the heat, so I’m having to try and sleep during the day with no air con. The service guys came out from Fuse and they immediately diagnosed a failed compressor. They indicated that the company would probably want to cash out rather than pay to have the unit fixed. He suggested an upgrade to better, more efficient heat pump and air con. That was okay. I finally got a voicemail back from American Home Shield and they said we had some options to discuss. I called them and the “option” was to give me $900 and not fix the unit. They indicated that it was undersized for the house. I told them that a 1000 sq ft house is well-supported by a 2.5 ton unit. They said that they would give me to the Authorization Department and the direct number if the call fails. I stayed on hold for 20 minutes, 2 x’s. I called the direct number and was on hold for 10 minutes and I gave up… It sounds like I may be experiencing the beginning of a similar experience of many of the other people that have written in. I need my air conditioning fixed now. I will return with updates to this situation. Thanks,

- Kristen, ID

I decided to shop for a new home warranty company for my home & rental properties because I was tired of paying too much and always waiting around for days before repairs were made. I found AHS on line and was sold by the simple statement that they have a 24/7 claims center. My 2 previous home warranty companies could not beat that. I recently had 3 service calls within 1 month. In each instance, the breakdown occurred after 330p and/or on a Sunday. With each request I spoke with Simon and I was thrilled that I could call my own repair company out and have repairs done immediately instead of waiting for someone to show up that I did not know and not knowing when. Each of the repairs were immediately approved and I promptly received reimbursement less my deductibles. Keep it this easy and I’m keeping AHS! Thanks Again Simon!!

- Lorance Morey

My AC repair was done to satisfaction except for the fact that the service provider, twice, gave me appointments that they did not keep.