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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