Why Buying a Home Warranty Could Leave You Feeling Burned (and What to Do Instead)
Home warranty companies often make big promises to get you to sign up, only to stall or deny expensive repairs when you need them most. This couple's experience is not uncommon.
If you are considering purchasing a home warranty, you might want to wait until after you've read this. Today's story offers information that can help you avoid getting ripped off.
First, let's clear up a common source of confusion: A home warranty is a service contract, not an insurance policy like your homeowners insurance. It is supposed to help pay to repair or replace major home systems and appliances that break down from normal wear and tear.
That's what the ads of home warranty firms say, and there are 114 such firms in the U.S. The largest is American Home Shield. Check out this NBC News video to get an idea of what many consumers are dealing with.
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One of the ways companies that offer these contracts make oodles of money is by promising to be there for you, collecting your monthly coverage payments and then coming up with one reason after another to deny claims when you need to actually use the services they've sold you.
They operate very much like after-market extended auto warranties, an industry whose motto should be, "Oh, so you drove your car after paying for our extended warranty? Who said you could do that?"
You have to give AHS credit for creative advertising — the fortune-teller ads with Saturday Night Live alum Rachel Dratch are fun. Those ads clearly state, "If AHS can't fix your covered item, they'll replace it, no matter its age." You can watch one of the ads here, which is featured on AHS' YouTube channel.
Vonda and Rick's experience: Delay after delay plus incompetence
In our office, we didn't need to look at a calendar to know this summer — the hottest ever recorded in the U.S. — was over. Something, or, to be more precise, the lack of something, was the clue: Not as many complaints from frustrated people calling about their home warranty companies refusing to repair or replace their AC units.
The home warranty is the very definition of a bait-and-switch, with advertising campaigns making the promise that, with various wording and for a monthly fee, the company is your safety net should something happen to a major appliance or your heating and air conditioning system.
A safety net is what longtime Southern California readers Vonda and Rick Perales expected from American Home Shield. "We had been subscribers for over 20 years," Vonda said. "As the company promptly repaired little things, like a dishwasher, we felt certain they would quickly remedy our AC system that had failed. Mr. Beaver, we were so disappointed."
Their discovery of just how much AHS cared about their customers was set out in this summary of a chronology that is the very definition of gross incompetence — at the very least:
- June 18. AC stopped working. Rick contacts AHS.
- June 22. Contractor arrives but says he can't access the unit because it is on a two-story roof with Spanish tile. Later that day, a different contractor arrives and offers the same reason for not accessing the unit on the roof.
- June 23. A third contractor says the AC is too old to fix and makes a request to AHS to replace the entire unit. Only a replacement compressor and fan motor are authorized.
Just a reminder that the ads we mentioned earlier say, "If AHS can't fix your covered item, they'll replace it, no matter its age."
Rick said, "Because our unit was 33 years old, the replacement parts drew too much current, leading to burned wires and the AC failing repeatedly — burning wires is a true fire risk.
"AHS sent out the same contractors, who again could not access the roof, then told us to find our own contractor. They refused to accept responsibility for the delays."
Fed up with the largest home warranty company in the U.S. refusing to honor its contractual commitments — and the statement in its ads — the couple contacted me.
I emailed an AHS media contact, asking her to help my readers. There was no response to my first email, so I sent a second, and this one prompted action, which eventually resulted in a $4,600 buyout of the Peraleses' contract.
Collateral damage
Rick reported that as of July 29, he had made 52 calls to AHS, beginning in June, trying to get contractors to repair or replace their AC. AHS required them to pay an $800 bill for Freon, as it was not covered in their policy. That would have been reasonable had AHS actually repaired their AC. Instead, it was money down the drain.
Vonda wrote to me, "We had to purchase an AC window unit at a cost of $599 and have spent $1,205 on hotel rooms due to the excessive heat. We have paid for this policy for the last 20-plus years. I do not know where we would have wound up without your help. Thank you, Mr. Beaver."
My advice
If you are seriously considering signing up for a home warranty, search the Better Business Bureau (BBB) website for reviews and complaints.
I am not only pointing out AHS, which has a BBB rating of 1.28 out of 5 stars (based on nearly 6,000 customer reviews), but the complaints about many of these companies should make you run the other way!
I have looked for a home warranty company to recommend, but I have not found one.
What can you do instead of buying a home warranty? (Again, I'm not talking about homeowners insurance — that is legit). Instead of a home warranty, consider opening a home maintenance savings account so you can budget for the repairs that every home will require at some point.
Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.
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