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If you haven’t lived in the deep south of the USA, you probably never heard of a home warranty. It’s a really weird and intriguing product that can make a lot of money for whoever decides to issue something similar in the UK, Europe or Australia, and can also potentially save a lot of money and hassle for clients.
What is a home warranty?
Let’s start off by clarifying what is a home warranty and what it consists of. It is, simply put, a service agreement in between a service provider and a client. The client is a homeowner, home seller, or home buyer and the service provider is the home warranty company. The home warranty company guarantees the client that all or some of his home systems and home appliances, such as septic pumps, sewerage, boiling systems or oven, will be repair once they are broken (or replaced). The client, on his behalf, guarantees to pay a monthly premium. Very much like an insurance although warranties are not regulated in the same fashion. It’s better to think of a home warranty as an extended insurance like the one you buy at electronics shops.
It would normally cost a client $350 per year (approximately 270 in Sterling) to get a basic coverage that does not consist of any luxury items such as pools, jacuzzis, or electric fireplaces. There is a small discount for clients who are willing to pay for at least 12 months upfront. The coverage limit is normally up to $500-$1,000 per item replacement, while repairs are generally speaking unlimited. There is an additional cost for each service call of $50 or 40 Pounds (which gets waived if you are having a second or a third call about the same house component).
What’s the advantage of home warranties for issuers and clients?
What a service like this does is enabling clients, who are likely to have cashflow deficiencies i.e. will be unable to repair or replace an expensive item if it gets broken, to pay a relatively low and steady amount each month and protecting themselves from the inevitable. Of course that at the end of the day these home warranty companies are turning a profit, i.e. they pay their repair persons less than what they are charging off clients each month, but similarly to insurance companies – it’s a win/win situation.
There is also a very strong angle of comfort for elderly individuals who do not want to speak directly to repairmen. They would much rather off speak to one company that services their entire home, regardless of the cost. This is one of the main reasons that the top state for home warranties is Florida, and it could of course be also very relevant to the UK audience with as many as 20% of the population over 65 years old.
Controversy concerning home warranties
There are a lot of advocates for the home warranty service but there are even more whistleblowers who claim the whole thing is a sham. I respectfully disagree although they do make some valid points (and even won a massive lawsuit about it), but it is another thing to consider for anyone pertaining to “import” that product over from the U.S.
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