Debunking 7 Common Misconceptions About Home Warranties 

Home warranties are a great way to save money and protect your investment. They are especially useful when a system or appliance breaks down unexpectedly, since they can be costly to repair or replace. Most people ask “What is a house warranty?” When there is a lack of information on a topic, there is a ton of misinformation and false information. 

However, there are many misconceptions about home warranties that can thwart homeowners’ efforts to use them to their advantage. It’s important to separate the myths from the truths before making a decision. 

1. They’re the Same as Homeowners’ Insurance 

Home warranty is a different product than homeowners’ insurance. Home warranty companies offer discounted repair for home appliances and systems. 

A scrupulous home warranty company will make it clear what’s covered and not covered in their policy documents. They’ll also disclose any major system exclusions, service wait times and claim limits. Disreputable companies can lure consumers into signing contracts using false claims and deceptive tactics. For example, they may send a letter on pink letterhead claiming that the homeowner’s mortgage lender has seized the policy and that it will be canceled immediately. 

2. They’re a Scam 

Home warranties are not insurance; they’re service contracts. A reputable home warranty company will be upfront about its terms and conditions. These will clearly state things like pre-existing condition exclusions, service wait times and deductibles. 

Homeowners should be suspicious if they receive marketing letters with a fake check from an unaccredited company such as “Home Warranty Direct.” Many homeowners have complained on Scampulse about these letters, which suggest the current homeowner’s home warranty may have expired or could expire in the near future. 

The attorney general’s offices of Oregon and Tennessee have posted examples of these scam letters online. Mortgage companies do not send such letters and should never ask homeowners to pay for a home warranty. 

3. They’re a Waste of Money 

Many homeowners buy home warranties because they want to be protected from costly repairs. They think that by paying a small service fee, they will save thousands of dollars. 

However, home warranties are not insurance. They are service contracts that have annual coverage limits and exclusions.

It’s important to consider your budget, your home’s condition and your ability to handle repair costs before you purchase a home warranty. For example, if you have a newer home or bought appliances with a manufacturer’s warranty, or if your credit card offers an extended warranty, then purchasing a home warranty may be unnecessary. 

4. They’re Not Covered for Everything 

Home warranty services aren’t one-size-fits-all. Different providers offer a range of coverage options, so homeowners should research and review contracts thoroughly to understand what’s covered and what isn’t. 

This is especially important if they are purchasing a new construction home. Builders typically provide some sort of builder warranty that covers defects in construction for one, two or even up to 10 years after the home is occupied. 

Also, a home warranty may exclude systems and appliances that have been repaired or replaced previously. It’s also not intended to cover things that would be covered by other warranties, like commercial equipment or pre-existing conditions. 

5. They’re Not Guaranteed 

Home warranties are service contracts that cover repair or replacement costs for certain items in a home. They usually last for a set period of time and are not the same as home insurance. 

Buyers are often offered a home warranty by the seller as part of the purchase agreement or even included in the contract. However, most warranties will not cover any issues that are considered preexisting and may exclude problems found during a home inspection or disclosed in the seller’s disclosures. 

They also may impose dollar limits on repairs, meaning you’ll be responsible for any bills over that amount. It’s important to consider your needs and risk tolerance before buying a home warranty. 

6. They’re Not a Good Deal 

A home warranty is a service contract that covers repairs and replacements of certain appliances and systems in your house. They can also be known as residential service contracts or appliance warranties. 

Home warranties can be helpful for people who have little or no savings to cover unexpected repair costs. However, they can be expensive if you’re unable to get your claim approved. 

It’s also important to research home warranty companies before you sign a contract. You can do this by checking the Better Business Bureau and your state’s insurance regulators for complaints.