It's possible that you've bought your share of home warranties—service contracts that promise to cover appliances and other items that break down in your home. You probably should not have. A recent complaint consumer officials in New Jersery filed against Choice Home Warranty in Edison, N.J., illustrates why.
The state's complaint says that far too often, warranty claims are denied because the company says the problem was pre-existing. Or, the claim is denied because the consumer can't prove that a broken item was properly maintained. We've seen consumers raise these issues in the past in connection with home warranties and other types of service contracts.
In this particular case, New Jersey officials say that Choice Home Warranty "repeatedly made it difficult if not impossible for consumers to realize the benefits of their so-called warranties," the New Jersey Division of Consumer Affairs said in a statement announcing the complaint, which was filed in state superior court in Middlesex County.
The state said the company, which sold coverage in at least 25 states, denied claims even when technicians said covered products had been property maintained or that a problem wasn't pre-existing or caused by a lack of maintenance. For some claims, the state said, the company demanded that customers provide years of maintenance records.
While the coverage required the company to replace products that couldn't be repaired, the state said the company offered consumers cash "buyouts" for hundreds of dollars less than it would cost to replace the item. And in some cases, local technicians dispatched to handle claims refused to respond, saying the company failed to pay them for their previous service.
In a statement, Choice Home Warranty said that it denies the allegations and will "vigorously" defend itself against them. The company also said it has paid "tens of millions of dollars" in claims for repairs and replacements and that the consumers who complained represent are small fraction of its customers.
Choice Home Warranty has an "F" rating from the Better Business Bureau because of 957 complaints, the time it took the company to resolve the issues, and the New Jersey complaint.
For more information, read our extended warranty buying guide.
We recommend avoiding service contracts, even those provided by companies that have no record of engaging in such shenanigans. The reason is that coverage for contracts that cover homes and cars, for example, can cost hundreds of dollars.
We also believe that it makes much more sense to buy reliable products and maintain them as the manufacturer recommends. Do that, and there's a good chance you won't need to make any significant repairs before the product becomes obsolete. Put the money you otherwise would use to buy a service contract into a savings account or product repair-and-replacement fund.
If a product breaks after the express warranty expires, there are many other ways you may be able to obtain a free or low-cost repair. Many credit card issuers automatically extend the manufacturer's warranty for an extra year or so for most products you buy using their card. Many companies also have goodwill programs and service campaigns that provide free or low-cost repairs or product replacement for items that fail in an unreasonably short time.
And under the so-called implied warranty of merchantability, which automatically accompanies many purchases under state laws, retailers and/or manufacturers may be legally required to address a product defect even if the express warranty has expired. Finally, manufacturers generally must initiate recalls and provide free repairs for safety-related defects.