Worst home warranty companies and scams

How to identify a bad home warranty company

With home warranty companies, you pay a monthly or yearly fee, and in return, the home warranty company will cover the cost of repairing or even replacing home systems or appliances if they break down from wear and tear. It's different from homeowners insurance, which usually covers items damaged by fire, theft or other unforeseen events. However, with so many home warranty companies out there, it can be hard to separate the good ones from the bad.

There are some things you can do to ensure you don’t get stuck with a bad home warranty company. “Check their online reviews and ratings on sites like the Better Business Bureau,” said Josh Amishav, a cybersecurity expert and the CEO of Breachsense. “Always compare multiple quotes, and make sure you understand the various coverage options, prices and contract terms.”

While you’re researching, look out for common red flags:

• Customers complaining about poor customer service
• Reports of the company denying legitimate claims
• Complaints of the company taking too long to send out someone to do repairs
• Reports of the company offering limited coverage and hidden exclusions to coverage
• Customers saying their repair issue hasn’t been resolved months after starting a claim

» READ MORE: Home warranty misconceptions

Signs of home warranty scams

Many home warranty scams start with a letter or email. In the notice, the scam company says that your home warranty is about to expire and you need to take action. These notices are sent out to people who own a home, whether or not they’ve ever had a home warranty plan. You may also stumble upon scam home warranty sites as you search online.

Always read the entire contract before signing. Scam companies try to bury hidden costs and too many exclusions in the fine print.

Overall, home warranty scammers have a few things in common:

• Require upfront fees without providing service: Most companies should offer some flexibility with paying monthly or annually, and they should only charge a service fee when you file a claim. Be on the lookout for customers complaining about paying completely upfront and never hearing back from the company once it came time for a repair.
• Make misleading coverage promises: Carefully read your contract to understand what is and isn’t covered. Scam companies often use vague language to describe coverage or intentionally confusing wording to get out of paying for repairs.
• Have a lot of fine print and hidden fees: Although contracts can be lengthy, it’s important to fully read them. A poor provider will bury information about extra charges and lots of coverage exceptions within the contract.
• Use unreliable contractors and provide low-quality repairs: Check that a company only hires certified, licensed contractors. You may notice customer complaints about repairs not being done properly or at all. A qualified company should put you in touch with a technician within one to two days, and repairs shouldn’t take weeks unless you need a specialty part.
• Make filing a claim difficult: A good company will allow you to file a claim easily online or by phone. You should never feel like you’re jumping through hoops to talk to someone or get an appointment scheduled with a contractor.
• Use high-pressure sales tactics to get you to sign up: You should never feel pressured to sign up for a plan. Aggressive tactics include constant phone calls, renewal letters and emails saying you have to pay immediately or you’ll lose special pricing or coverage.

How to protect yourself from home warranty scams

To protect yourself from scam home warranty companies, keep a few things in mind. If you receive a notice that your home warranty is expiring, don’t reply. If you have a home warranty, go directly to your provider’s website and log in to check if your service is about to expire.

If you don’t have a home warranty but you’re looking for one, be sure to thoroughly research companies before signing up. Read what other customers have experienced. Also, read the contract terms and make sure you understand them before signing up. If a company is legit, its customer service reps will be happy to answer your questions, so don’t hesitate if you’re not sure about coverage, fees and other terms. If the rep doesn’t provide clear answers or dodges questions, don’t sign up.

“Be wary of high-pressure sales tactics, unusually low prices and promises that seem too good to be true,” Amishav said. “Finally, understand the cancellation policy before signing anything and trust your instincts — if something feels off, continue your search.”

» LEARN: 10 questions to ask a home warranty company

What to look for when researching a home warranty company

Good home warranty companies offer you a reasonable fee (usually $36 and $68 a month, or $264 to $1,425 annually) to cover your home services and appliances. Basic plans typically cover:

Appliances

• Washers and dryers
• Refrigerators
• Built-in microwaves
• Stoves, ovens, cooktops
• Garbage disposals

Systems

• HVAC
• Electrical
• Plumbing
• Water heaters

Always compare companies to see what their plans offer and the prices for each. Don’t forget to check customer reviews, and look over the terms and conditions for coverage limitations (like caps on appliance replacement) — also known as aggregate limits.

“For example, if the cost to replace your refrigerator with a similar model is $10,000, but your home warranty replacement limit is $3,000 you may have to choose to write a big check for the difference or replace the unit with a lesser model,” said Kathleen Kuhn, the head of business development for Fixle, an appliance management company.

The last step before signing up is checking the company’s licensing and accreditation. A legitimate company should be able to provide proof, but you can also check with the Better Business Bureau to see if a company is licensed and accredited.

» LEARN: What does a home warranty cover?

Bottom line

Home warranties cover the costs of repairs or replacements if things go south. Not all companies are good, though, and there are scammers out there. Look for red flags like reports of poor customer service, denied claims, hidden fees and bad repairs. A solid company will have fair prices, clear terms and reliable customer service.

To choose the right company, check online reviews and ratings and always compare quotes. Read the contract, ask questions and watch out for those common warning signs. Be wary of high-pressure sales, low prices that seem too good or promises that seem questionable.

If you've encountered a bad home warranty company or scam, don't be shy about sharing your experiences. Your stories can help others avoid the bad apples. Spread the word, write a review, and let people know what to look out for.