Are Home Warranties A Scam? Facts & FAQ

If you mention a home warranty in mixed company, at least one person is likely to chime in and say that they are a scam. These people often speak with authority and disdain. Don’t get a home warranty, they say, you will only waste your money. This conversation has been repeated so many times that many people simply write home warranties off.

Are home warranties a scam? The answer is no, but the situation is complicated. It is easy to get yourself into a bad situation by utilizing a bad company but there are legitimate home warranties out there that can help save homeowners time and money in the long run.

Here is everything you need to know about home warranties this year. This article includes the answers to why home warranties are not scams, why people think they are scams, good home warranty companies you can trust, and ways to spot home warranty scams before you fall for them.

Home Warranties Themselves Are Not a Scam

Home warranties are a legitimate form of business. Home warranties aim to cover things that home insurance does not, such as appliances, light fixtures, and other similar items.

A homeowner pays a monthly fee for coverage, and then when a covered item breaks, they file a claim. Sometimes, home warranties aim to have your items fixed rather than replaced. Other policies aim to replace broken items, and others simply pay out an agreed upon price.

Home warranties are real. They were not invented with the purpose of scamming people out of their money. There are similar businesses for cars as well, such as Car Shield.

The issue with home warranties is twofold. First, people who struggle to have claims paid out in a timely and effective manner feel like they are being scammed. Second, home warranties often come up in actual scams as a way for people to steal each other’s money. Despite these things, home warranties themselves are not inherently a scam. In fact, there are legitimate businesses hurt by the stigma that home warranties are a scam.

A Bad Company vs. A Scam

Bad Company

There is a big difference between a bad company and a scam. Bad companies can often feel like a scam, but they are not. Bad companies home warranty companies are ones that are slow to respond, are very picky about what they do and do not cover and make the claims process purposefully obtuse or hard to deal with.

Bad companies will do everything in their legitimate power to try and prevent paying out a claim or drag the claims process out, so they do not have to pay quickly. All that behavior is legal. It is not a scam. You do not want to get involved with a bad company. It can be extremely frustrating and disheartening. But it is not illegal to run a bad business. Bad companies legally have to pay claims out eventually. It just might not be a very smooth or enjoyable process.

Scam

Home warranty scams are run by illegitimate actors pretending to be a home warranty company. These scams pretend like they are legitimate businesses, get people signed up, and then disappear. They take an initial fee, and sometimes a recurring fee, with no intention of ever paying out in case of a claim. Sometimes these scams are operated just to steal people’s information, such as their addresses, phone numbers, social security numbers, and information about their mortgage, income, or property.

Despite getting a bad reputation, these types of scams can be run while pretending to be any type of business. Warranty companies are often chosen as fronts for scams because they promise a large number of benefits without having to pay out immediately. People hope they never have to use warranties because it means nothing is broken. This gives scammers leeway to take money upfront and disappear before the victim suspects that anything is amiss. The issues only arise when you try to make a claim and realize that there is no company to do so.

Reputable Home Warranty Companies

If you like the idea of a home warranty but are apprehensive about how to get started, there are some companies that are universally known and respected. These companies were vetted by Forbes and US News & World Report and were labeled safe and effective businesses.

US News & World Report names these companies as their top-rated home warranty companies.

Forbes came to a similar conclusion Forbes ranked these companies as their top-rated home warranty companies.

If you are looking for a company with a proven track record, good customer service, and reasonable prices, these are the companies that you should look into. Note, that not all warranty companies operate in all states. Some local regulations prevent warranty companies from operating in their jurisdiction.

How To Spot a Home Warranty Scam

Generally, home warranties are not a scam. Unfortunately, some of them are. Home warranties, and warranties in general, are often a vessel for people with bad intentions to get in contact with someone. There are a few things you can do and some signs to look out for to tell if a home warranty is legitimate or a scam.

One of the first indications that something might not be right is if you get a call from someone claiming to be a home warranty representative. If you are not currently signed up with a home warranty, do not take calls from people claiming to have information regarding your warranty. Homes do not come with warranties like cars. Homes do not require warranties for anything, including a mortgage. If you do not currently have a home warranty, there are no warranties hiding or lying inert. It is smart and safe to ignore these kinds of calls.

Another way to tell if a home warranty is sketchy or not is to research their claims process. Real warranties have a very clear claims process with real people to help you along the way. If you cannot find good information about the company’s claims process, that is a red flag. Additionally, if you have a hard time getting a real person on the phone instead of a phone tree or a robot, you should probably give the company a wide berth.

Lastly, do some research. A good company will have plenty of resources online that will give you a quick idea of what the company is about. Check to see if the company is registered in your state. See if the company has reviews on the Better Business Bureau or local reviews by real people. Do not simply take an advertisement or cold caller at face value.

Conclusion

Home warranties are not a scam. Unfortunately, a combination of scammer tactics and bad warranty companies has given people the impression that all home warranties are scams. A bad warranty company can make it feel like you are trapped in a scam, but there are good home warranty companies out there.

If you are interested in finding out more about home warranties, do not be afraid. The business is not a scam. Do your research, do your due diligence, and keep your eyes open. There are good companies out there that can help homeowners with common fixes and issues inside their homes that home insurance will not cover. You just have to know where to look and what to look out for.

• See Also: 6 Common Roofing Scams (and How to Avoid Them)

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