Q: What is a home service contract?
A: A home service contract provides service, repair or replacement on a home’s major systems and appliances for a usual term of one year.
Q: What is an NHSCA Company Code or “Co-Code”?
A: In 2012, the NHSCA began issuing an NHSCA company code number or “Co-Code” to all members. This alllows you to easily distinguish one company from another and assure you are dealing with a reputable and registered member of the home service contract industry.
Q: What triggers my coverage?
A: Generally, any failure of your covered home appliance or covered home system that fails due to normal wear and tear.
Q: What does a contract usually cost?
A: Contract fees vary from provider to provider and region of the country. The expected cost for a basic contract might be from around $400 to $550 per year.
Q: Is there a house call or service charge?
A: Currently one may find a range from approximatley $35 to $100 depending on your area of the country.
Q: What are appliances and systems? What is actually covered?
A: Basic and optional coverage varies from company to company with some regional variances. Home service contracts are specific and do not include everything in your house and most do not cover home foundations, walls, structure or finish. Typical covered systems and appliances generally include:
· Interior Plumbing
· Heating System
· Electrical System
· Water Heater
· Garbage Disposal
· Garage Door Opener
· Air Conditioning (may be found as an option)
· Refrigerator (may be found as an option)
· Washer/Dryer (may be found as an option)
· Pool Equipment (optional)
· Spa Equipment (optional)
Q: Are home service contracts insurance?
A: NO. Insurance policies undertake to indemnify or pay economic dollar loss for damage or liability from unknown or fortuitous events. Insurance pays when appliances or homes are damaged from perils such as fire, water, flood, windstorm, collision or outside forces causing breakage from an accident, such as a tree falling on your house. Insurance covers your dollar liability to others when you are accused or found liable for an accident, negligence or damage to others or others property. Insurance never pays for breakdown of goods or property from normal wear and tear. In this sense, home service contracts are the exact opposite of insurance. Home service contracts compliment an insurance plan, they do not substitute for one.
For a summary on the history of service contract regulation in the United States, click here. Legislators, insurance regulators and attorneys may find this of interest.
Q: Do home service contracts have a deductible?
A: NO. Home service contracts are not insurance. There usually will be a service call fee as explained above.
Q: Home “warranty” or home “service contract” or “extended warranty,” I get confused. What is the difference?
A: Excellent question. We will help sort it out for you. We just defined basic home service contracts for you. A number of providers of home service contracts market their products under the term “home warranty.” That’s OK. Warranty is a marketing term and one which real estate professionals use as well. Home “warranty” is also a term used by new home builders to describe their guaranty on the quality of their construction. Home service contract providers and home builders are in separate industries. Home service contract providers do not build homes and cannot assume liability for faulty home construction. Home service contract providers cannot and do not cover home structural defects or problems with home craftsmanship or finish. However, several states allow home service contract providers to also cover some structural items (such as roofing systems from leaks).
“Extended” warranty or extended service contract is a term most associated with new, retail electronics and goods. New products generally have an original manufacturer warranty for 30 days to one year. Extended contracts are generally very specific to an individual product and do not apply until the manufacturer warranty has expired.
Finally, you will often hear about automobile service plans or contracts, pre paid legal services or funeral service plans. While there are some legal and functional similarities among all types of service contracts, these are entirely separate industries. They should not be confused with the home service contract industry.
Q: Is there any cross over between home service contracts, insurance and home structures or construction?
A: Not normally. In rare instances when common sense alternatives do not exist, a home service provider may offer some incidental cash payment in lieu of repair or replacement. For example, your condenser has failed on your air conditioner and can be repaired, but the technician discovers your house has other defects and electrical code deficiencies. You determine a remodel and a new electrical service and infrastructure is overdue and required. It may make better economic and practical sense for a cash settlement to apply to your overall remodel. All states but Virginia (which presently license home service companies as insurers) would allow this incidental cash payment without it being considered insurance.
Some home service companies provide coverage if damage is caused by an electrical surge. This is because failure of an appliance can be from internal electrical failure, power company supplied surge or even lightening or a combination of all three. Damage may be covered by your homeowners insurance and should be consulted first. However, state insurance regulators allow such incidental coverage by non insurance companies because disallowing the coverage would upset most consumers as electrical failure can be hard to pinpoint its cause.
Some home service companies may provide optional “roof leak coverage.” Roofs are technically structural components of a home but they are most often recognized as a system to prevent water and rain from entering a structure. Homeowners insurance may cover hail damage or fire loss to a roof and may cover consequential damage to contents from a sudden and fortuitous leak, but they do not cover routine, slow and pesky leaks. As a result, a growing number of states specifically authorize home service companies to provide this needed consumer service.
Q: Are these the same as maintenance agreements like my heating and cooling contractor offers?
A: NO. Maintenance agreements are much more limited. While they may provide service or reduced cost of repair, they typically do not include full repair costs and do not include replacement. They are typically limited to one appliance or product. They are often offered by heating, ventilation and cooling (HVAC) companies. Their prime function is to inspect and service your system once or twice a year and simply point out repair needs. Home service contracts cover a wide selection of home appliances and systems and include full replacement if required.
Q: When is the best time to buy?
A: Anytime. Home service contracts by their nature cover existing (“used”) appliances and household systems. Appliances and household systems by their electrical or mechanical nature will wear out. You may never experience a house fire or car wreck, but your dishwasher will malfunction or wear out. Many appliances have very predictable life spans.
Home service contracts have traditionally been purchased by a HOME SELLER for the benefit of a HOME BUYER for the first year after a home sale. Why? Buyers are more assured to buy a home knowing they have peace of mind against major appliance and system failures. Real estate agents almost always recommend a home service contract. Home sellers find the cost very minor in relation to the house sale and both seller and agent rest easier knowing the buyer will not be calling them when something fails.
Almost anyone can buy a contract on their own home, today. With the growth of two income earner families and a larger senior population, many homeowners find an annual service contract does what they cannot do—provide the expertise and time to fix things around the house right and right away. It also provides everyone a more predictable repair budget. With so many families relocating every three years, few have time or confidence to find good, proven plumbers or heating and cooling technicians and electricians in their new neighborhoods. A home service contract gives them one simple 800 number to call to provide guaranteed service by proven and reputable professionals in their community.
Q: What are some typical limitations found in home service contracts?
A: Home service contracts cover the repair or replacement of a home’s major systems and appliances that break down due to normal wear and tear during the term of the contract. Therefore, items that are not typically covered include:
· Preexisting conditions that existed prior to the effective of coverage.
· Items that fail due to an occurrence other than normal wear and tear. Consequential damages caused by the failure of the system or appliance are not covered. Your insurance may apply.
· Items not mentioned as covered in the terms of the contract.
· Items that were improperly installed, modified or where the damage was the result of or worsened by, an attempted repair or remodeling.
Q: Are Preexisting conditions covered?
A: The answer is no. Just like no insurance company would insure a terminally ill patient, a burning house or cover a car a day after it was wrecked, home service companies do not cover appliances or systems which are already broken. In a home sale situation, a buyer, a mortgage lender or FHA required home inspection usually adresses this issue. On existing homes, some people could be tempted to outsmart the experts. Truth is, most experienced plumbers, HVAC technicians and electricians are pretty adept at recognizing how long a situation has manifested itself. Technology is pretty good these days. Quality home service technicians also have their trade secrets to know when your appliance was installed, was last serviced or repaired, and even when it likely broke down or last operated. However, if a preexisting condition is unclear, most companies provide the contract owner the benefit of the doubt.
Q: What is the best way to select a home service contract company?
A: It is important that the company you select be a licensed home service contract company (or possibly referred to as: home warranty company, home protection company, residential service company or home service contract company) in your state. Rest assured that all member companies of the NHSCA are licensed companies in good standing that adhere to a strict code of ethics set forth by the Association to promote fair and ethical business practices.
Ask your real estate agent or broker. They recommend quality home service contract providers every day.
In a nutshell, home service contracts provide:
· Peace of mind – buyers knowing that they are protected against unexpected repair or replacement costs; sellers relief that after the sale and move, covered service problems will be take care with the additional after-sale liability protection.
· Budget protection – from high cost of home repair.
· Convenience – most home service contract companies handle claims 24 hours per day, 365 days a year. They will contact a local, qualified service technician to schedule a convenient appointment to affect the repair.
· Faster home sales: By providing a competitive edge over the other homes on the market.
· Home sales for a higher price: Because when a buyer feels protected from unknown after-sale problems, it can discourage downward price negotiations.
Q: OK. I am ready to buy. Who do I call?