Around the first anniversary in your new house, you'll probably get a notice from the warranty company offering you the opportunity to renew the service contract for another year or longer. Should you bite? Warranties can also be purchased by existing homeowners, and if you don't like the current company you're with you can switch to a competitor. But are these service contracts, which can run $300 to $600 or more annually plus co-pays, which can be $0 to $100, worth the expense? Here are six tips from the experts before you sign on dotted line.
Get your copy. "If a company is asking you to renew or soliciting you to buy a new service contract, ask for a copy first," says Stephen McDaniel, assistant executive director of the Service Contract Industry Council in Tallahassee, Florida. "A reputable firm isn't going to pressure you to buy a contract if you want to read over the details on your own time. If they don't want you to see it before you buy, assume there's a problem."
Don't over-cover. If you had a new furnace/air conditioner or swimming pool pump installed when you moved in, it doesn't make sense to pay for a rider on a service contract covering these items. "You're likely going to have a warranty from the manufacturer and/or installer," says Linda Sherry, spokesperson for the Washington, D.C.-based advocacy group Consumer Action. "You have to think, 'This machine is brand new, not five or 10 years old, I wouldn't likely use my warranty coverage on these items.'"
Check out the contractors. When you place your call for help, you have no control over who will be sent over to fix your jammed disposal. "If you're used to just calling a contractor directly and getting a job taken care of, it can be a little frustrating," says Robert Machado, a Sacramento, California, property manager who has dealt with service contracts on some of his properties. "There's a delay since the warranty company has to call their contractor, who in turn calls you to set up the appointment. This can be an hour to a day or two, which is difficult when you're living with no hot water or a broken garage door. The service companies have to be licensed, but you get a sense that many are just starting out in the business and you wonder if you want some inexperienced worker trying to fix your plumbing." Before buying a contract, ask for the names of some of the service contractors who will be summoned when you call so you can check their names with the state contractor's board.
Prepare for the Big One. Although you can have a warranty service person come out to clear a terminally plugged drain or install a new circuit breaker in your electrical panel, home warranties are generally most valuable for the biggest homeowner headaches, such as HVAC systems, plumbing and pool and spa equipment. "It's not a bad idea to ask how the warranty company handles large jobs," says McDaniel. "How do they determine if your air conditioner needs to be fixed or replaced? What are your maintenance responsibilities while the unit's working and what's covered?"
Handling the extras. Besides your co-pay at the time of service, your contract may stipulate that if building codes require additional work to make the repair, such as a requirement that water heaters sit on a platform six inches high, you'll have to pay extra for the work. "If the contractor tells you it's going to cost $200 more and that seems outrageous, ask for a rundown on how he came up with that figure," says Machado. "Lots of times they'll back off and take that figure down."
Keep your paperwork. "If you're renewing year after year, you may not notice changes in coverage if you don't take a look at the contract they send you," says Sherry. "Also keep the receipts of work done by service contractors if you need them to come back and re-do a job that wasn't fixed properly."