A home service contract, otherwise known as a home warranty, provides homeowners with peace of mind that the cost of repairing or replacing an appliance or major system will be covered. However, many people are unaware of exactly how a home warranty works. The Service Contract Industry Council (SCIC), a leading advocate on behalf of consumers and the home service contract industry, offer the following guidelines for purchasing a home warranty.

What is a home service contract?
The typical home service contract is a one-year contract that protects a homebuyer or current homeowner against the cost of unexpected repairs or replacement of major systems and appliances that breakdown due to normal usage or defects in materials or workmanship. A home service contract can:

• Lessen the risk of costs and delays if a system, system component or appliance malfunctions during the selling process
• Help to resolve issues discovered during the home inspection stage
• Reduce any after-sale liability by a seller
• Add value and improve marketability of homes
• Increase a buyer’s confidence in their home investment

Who sells home service contracts?
REALTORS®, builders and independent providers sell home service contracts. A home service contract can be purchased at any time, including at the time of purchase, and is usually transferable to a new owner, although a small transfer fee may apply.

What is the difference between a home service contract and homeowner’s insurance?

• Home service contracts typically cover the major systems in your home in the event of breakdown or malfunction including electrical, plumbing, heating and air conditioning systems, and built-in appliances such as ranges, washers and whirlpool baths.
• Homeowner’s insurance covers the structure of a home and personal belongings in case of a fire or natural disaster such as hurricanes and lightning, and provides liability coverage in case someone is injured on the property.
• Home service contracts are optional in real estate transactions.
• Homeowner’s insurance is almost always required, especially if the buyer has a mortgage.
• A home service contract is not a substitute for a homeowner’s insurance policy. A home service contract is a beneficial supplement to a homeowner’s insurance policy as homeowner’s policies generally do not cover items for breakdowns or malfunctions due to normal wear and tear or defects in materials or workmanship.

Do I need to be buying or selling a home to purchase a home service contract?
No. A home service contract provides valuable protection for current homeowners when a system or appliance fails.

Can I transfer my home service contract to the new buyer of my home?
Most home service contracts are transferable and may offer the option to allow the buyer to change or upgrade the service contract. A low-cost transfer fee may apply.

Can I customize the home service contract to meet the needs of my home?
Yes, but fees may apply. You may be able to purchase a home service contract that covers smaller appliances such as ceiling fans and built-in microwaves. Additional fees apply for coverage for private wells and septic systems.

How are contractors screened?
SCIC member companies typically put their contractors through a rigorous screening process that includes state license verification, detailed reference verification, and background checks.

How do I file a claim?
Homeowners are given a toll-free number to call. The home service contract company will verify your coverage and dispatch an independent contractor to assess the problem and replace or repair the item as necessary. A service fee, $50 on average, is charged per service visit.

What Can Cause a Denial of Payment?

• Improper maintenance
• Code violations
• Unusual wear and tear
• Improper installation

What is generally NOT covered?

• Outdoor items such as sprinklers
• Faucet repairs are not covered under all plans
• Garage door openers
• Spas or pools, unless specific coverage is requested
• Permit fees

What are the consumer’s responsibilities?
Home service contract coverage varies from state to state and from policy to policy so the consumer needs to:

• Request a copy of the contract before buying
• Read the provisions carefully and become thoroughly familiar with all coverage, limitations and exclusions
• Carefully fulfill all contract responsibilities, such as regular filter changes for your heating/air conditioning systems
• Keep the service contract paperwork, original receipt(s), and all maintenance records
• Research the service contract company

Source: Service Contract Industry Council

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