Home Protection Plans – Why I’m Cancelling Mine for Good

by Neal Frankle, CFP ®

Do you think that home protection plans are just another scam? You might be right. If you’re like me, you like the security of knowing you’re covered if something goes wrong at home. I’ll admit that I’m not the handiest Pilgrim there is.

So when it comes to home maintenance, I have always had a home protection plan. But that’s about to change.Home Protection Plans
There have been years when this policy has paid for itself, but they’ve been few and far between.

What Is a Home Protection Plan?

This is a policy that provides some coverage to you when home appliances go on the fritz. You call the company and they send someone to do the repairs or replace the unit. They fix the problem. You pay a monthly premium plus a deductible for the service call. Simple.

This of course is in a perfect world.

The Problem with Home Protection Plans

Of course it’s difficult to schedule an appointment, but that could be the case even if you go directly to the repair company. The real problems are with the contract. I found this out firsthand just yesterday.

Our water heater started leaking and needed to be replaced. The insurance company was willing to pay for a new heater, but first I had to pay for the building code upgrade requirements. If my home had been damaged by a fire and required some remodeling, my property insurance would have covered those upgrades. So why didn’t the home protection plan cover the upgrades we needed after our water heater leak? This made no sense to me. The upgrades cost more than the heater itself. And it seemed like the insurance company and the contractor were almost conspiring against the homeowner. Here’s what I found out.

When the insurance company sends out a repair person, you pretty much have to use that person unless you want to go through a lot of red tape. That’s important because the first person they send knows this. They could stick you with some very expensive “upgrade” costs that you can’t do anything about. This erases competition from the equation, and that’s never a good thing – unless you’re the contractor.

And the insurance company doesn’t take any responsibility for problems they claim result from bad maintenance or installation. And often they’ll try to convince you to repair the item when it really needs to be replaced. A good rule of thumb is that you should replace appliances older than seven years or if the cost to repair is half as much as the cost to replace. But the insurance company won’t tell you this.

Of course, when it comes to insurance, it’s impossible to know for sure that you don’t need it. Other than when it comes to term life insurance, this question has always vexed me. And this is especially true when it comes to home protection plans. If I cancel my coverage, I become the insurer and I have to be ready to fund a repair or replacement whenever that happens.

The best way to do that is to have a home emergency fund set up. What I’m going to do is put those monthly premiums in a special account for home repair. If I later see that I’m spending more than the account has, I may reconsider my decision. But until those companies start writing fair contracts, I’m out. What’s your stand on home protection insurance?

 

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{ 11 comments… read them below or add one }

GrannyJ December 23, 2013 at 11:11 AM

We have paid for a home protection plan with Total Protect Gold for several years. Had a problem with the ice maker. Called not covered. Have a problem with our freezer called not covered. What do they cover beats me. And you don’t know until you need the service. Not covered. Canceling today.

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Neal Frankle, CFP ® December 23, 2013 at 11:37 AM

GrannyJ – of course I’m sorry you had this problem but I think you’ll really be happy with the decision. I know we are!

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Mel August 4, 2012 at 7:13 PM

Dealing with this nightmare now. Have decided that after they make their most recent repairs (and a little while to be sure they are repaired), they will be booted to the curb. Makes much more sense to pay myself every month. Thanks for the encouragement!

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Neal Frankle August 4, 2012 at 10:50 PM

Right. It’s been 3 years now since I cancelled my policy and I am way ahead of the game! I am sure it w/work out for you.

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JMN June 5, 2012 at 7:26 AM

All valid points, however, a homeowner is not “stuck with the contractor the insurance company sends” at all; Work and services performed for a claim are payable by the HO insurance no matter who does the work; Most homeowners don’t know or have an on-hand contractor, so, they go with whomever is recommended by the insurance company; Do yourself a favor and research, ahead of time, viable, responsible contractors for your home repairs.

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Neal Frankle June 5, 2012 at 8:53 AM

@JMN You are right but I had to jump through hoops in order to use someone other than the contractor sent by the insurance company. BTW, 2 years after cancelling the insurance and it’s been great!

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Jim June 26, 2011 at 1:56 AM

When our air conditioning wasn’t cooling, we called our ‘pimp’, who was highly recommended by our real estate agent.

For the modest deductible fee, the contractor couldn’t find the problem but recharged the unit so it started to work properly. After two months we had to call again, and for the same fee the contractor did the same thing, but also mentioned something about needing a new system, which would cost us more money if we wanted a better quality brand than their standard replacement brand.

When the air conditioning failed a third time, we met the red tape that came with trying to request a reputable local service contractor. So we struck out on our own and just called the local contractor ourselves, preparing for a large repair bill. Within a few minutes, the repair person realized that our system had a factory service recall on one of the internal parts, which meant our system was repaired, correctly, for less than the cost of the two calls to our ‘pimp’.

We dropped AHS like a hot potato and vowed to never consider that route again. We also view real estate agents with a lot more suspicion.

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Neal Frankle June 26, 2011 at 7:39 AM

I’m with you Jim. When I first cut the cord, I was nervous but now, I’m happy as a (Kosher) clam that we don’t pay for this insurance. We are also saving money and getting better repairs at the same time. Sweet-a-kimbo.

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Doable Finance May 19, 2011 at 5:38 PM

I do all my appliance maintenance myself. It’s like a car. You must maintain it to prevent costly repairs. I take the same attitude with home appliances.

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Rupe May 4, 2011 at 8:10 AM

I realized this quite early on. After purchasing my first house back in 1996, I was giddy with excitement and opted for all the frills that I could add…and did I add.

American Home Shield was my “pimp’…if you know what I mean. So when my heater when down in the dead of winter, somewhere around 1997ish, I called them, and that was when I discovered the nighmarish experience that lurks behind their contract.

Suffice it to say, I needed a heater pronto! so I went out got it for about $140 from Home Depot and installed it myself (an admitted novice at these things) in a few hours. I promptly canceled my policy the next day.

It has been 15 years since, and a total of 3 homes and I have never bought another of those hellish policy. It is a freaking ripoff…and I am totally convinced wilful, if not mindful collusion takes place between the insurance companies and the parasetic contractors they send out to our homes. Stay away…stay far away.

Rupe

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Jessica07 May 3, 2011 at 5:13 PM

I love that 7 year rule of thumb you mention. I’m definitely going to keep that in mind in the future. Thanks. :)

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