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How a Home Warranty can save any homeowner, even landlords, money  XML
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Joined: 06/17/2014 09:32 PM EDT
Messages: 5244
Location: Carmel, IN

There's an obvious problem with any sort of insurance, inherently: The Insurance Company Makes Money. It's how they make it and what they deliver to a client that matters in the end, and if it is done right--everyone wins.

When it comes to most types of risk management (insurance), the benefit is one-dimensional and it's called "risk of catastrophic loss". None of us, even the billionaire class, would drive a car or own a home or own commercial property without having insurance. The risk of a single event occurring that is financially devastating is too high even if it is slight. Rear ending another driver on an icy patch could result in hundreds of thousands of dollars in damages depending on the injuries sustained. A single fire, from some fluke electrical problem, can mean a total loss of a home that costs hundreds of thousands to rebuild. Of course in both cases it's either required to insure under the law (auto) or by the mortgagee (home, and yes the bank that gives you the loan is the "mortgagee", the person who took out the mortgage is the "mortgagor").

Right below Property & Casualty Insurance (a class of insurance) comes Health Insurance. A single pill bottle generally isn't a catastrophic (nor an unexpected) loss, so the Health Insurance companies have to go one step further to deliver the value that makes it a no-brainer to buy their policies. In this case they implement a combination of catastrophic loss coverage (that surgery that costs thousands or tens of thousands of dollars) and they negotiate discounts on the services and products (pills) so when you go to CVS you're out a little bit less money. Health Insurance policy holders are essentially a combination of a group purchasing co-op and a risk management collective.

Now let's skip to the bottom before we come back to the Home Warranty. The reason I want to do this is because the word "Warranty" or "Service Contract" is utilized (and regulated under such names) for a large variety of things and at some point this week or this month you will be faced with an opportunity to purchase a policy at the very bottom of the risk management hierarchy: The "Point of Sale Warranty". Now I'm not saying they're all bad- for instance Apple offers "AppleCare" on their insanely expensive and awesome computers for a relatively minimal fee that covers both repairs for a period of generally 3 years as well as some very comprehensive tech support so a dummy like me can call in and say "How do I change my desktop background on each screen?" (and yes, I really called them to ask this). Then there are the much less appealing policies available at retailers like Wal-Mart and Best Buy on things like $35 speakers or $85 toaster ovens. At the cash register, when you purchase either of these items, you're basically hit with a sucker bet. Pay $5-$10 for a "Service Plan" that allows you to return the thing for a period of 1-5 years and exchange it if it breaks. There's no real value add, no discounts, no tech support...just a simple pay some money now and if you happen to remember the policy when your speakers start getting a little "buzzy" (you won't) then you can go through a process of filling out forms and getting a replacement of whatever the equivalent is later.

These "POS" (meaning "point of sale", not "piece of $h!t" lol) Service Plans as they are usually referred to are a simple financial transaction that creates a beneficiary situation and it is not the consumer generally. It's a solution to a problem that most really don't face, so if you ever hear your father or grandfather say "never pay extra for the warranty", he is absolutely correct and he is referring to POS Service Plans.

Now let's go back up a level (or a few levels) to the Home Warranty, and let's look at the absolute best model in the business (and fastest growing)- Residential Warranty Services, Inc. in Carmel Indiana - http://www.ResidentialWarrantyServices.com - a nationwide home warranty provider that focuses on real estate transactions. Let's start with what they're not- these policies are NOT catastrophe insurance. They start at $395 and cover issues with HVAC systems, plumbing, electrical systems, and appliances (along with a long list of other mechanical working components in the home like garage door openers and sump pumps). There's nothing particularly catastrophic about a furnace or air conditioner problem. Even a big one where replacement for a few thousand dollars becomes necessary is nothing compared to a whole house fire loss or a $25,000 surgery (although it does help and it keeps clients happy with their transaction).

Now here's what it shouldn't be: A simple financial transaction.

When you see warranties that get a large number of bad reviews (like American Home Shield, HWA, First American, etc.), they're likely focused severely on the financial model. "Pay us $400, we'll pay for your home repairs (at a number of less than $400)". In essence, if that's what they're doing, you're basically exchanging $400 of your hard earned cash for $200. This is where the Residential Warranty Services model is different, because we look at that $400 and say, "Pay us $400, we'll deliver value PLUS the risk management (admittedly the risk management is under the $400 mark, which is required to turn a profit)".

This "Value" isn't just words either, we have a four step process to any claim/concern, and it goes like this:

1. Contractor Deployment

Finding a contractor for a small repair, especially one you can trust, is something many homeowners struggle with. We have a team of 5 people that do nothing but find great contractors, interview them, confirm they are licensed and insured, and track them through their first few jobs with us to make sure they are reliable and honest. (Many don't make the cut!)

2. Diagnosis

This is where Warranty companies and homeowners alike stumble big time, and it's not their fault- it comes from a lack of advanced mechanical knowledge. When it comes to diagnosis and prescription of a repair, many contractors inject their profit motive into the mix. In other words, a simple repair can very quickly turn into a "necessary replacement" when the necessity is far from true. Our process involves analyzing 30 years of compiled data and over 250,000 claims and comparing that with what a homeowner is experiencing today. Then we take a look at the contractor diagnosis, and get down to the bottom of what needs to happen to make sure the repair is done right, done quickly, and done efficiently.

3. Coverage

After steps 1 and 2, we're on to coverage. Of course we like our policies- both our mechanical policies like the SIMPLE plan from Residential Warranty Services available at http://www.ResidentialWarrantyServices.com and our one of a kind Structural Policies available on any home regardless of at at http://www.NXTwarranty.com have coverages that other policies exclude (like Sewer Lines underground between the home and the street)- but at the end of the day this third step is common amongst warranty companies. We just do it a little better with a 100% US based staff right here in Carmel, IN, nothing outsourced, and a live person available 24/7/365. Does it cost us a lot more to deliver that than our competition? You bet, but our coverage is still competitively priced and in most cases comes in at a lower price point.

4. Negotiating Power

Last but not least, we have the "Non-Covered Items". Let's say, for example, that you have a compressor out in your air conditioner. We can replace the compressor for $1000, but it's a good idea at this juncture to take that money and put it towards a new unit. It's our job to justify your purchase of our best in the industry warranties, and one of the ways we do that is to make sure that contractor gives our clients great rates even when the work being done falls outside or goes beyond coverage. When you look at other models in the industry, the exact opposite is true- for example, with AHS in many circumstances the contractor is under a (confidential) contract to repair anything for $200-$250 all in, even if it means replacing a water heater where the parts cost alone is $500 or more. The reason contractors take this deal is to get a chance at all of the non-covered work at a premium retail rate, ultimately costing a customer thousands of dollars and encouraging contractors to find issues that fall outside of coverage or even to determine that issues are outside of coverage.

When all four of these components are deployed, we find our average customer gets way more than the $400 warranty premium back. It stands to reason that less than $400 will be spent on claims itself, which is the same for any risk management policy, but we aim to take the Health Insurance model of discounts on services combined with the Property & Casualty model of taking away the possibility of catastrophic occurrences like sewer line failures and add on to that the convenience of procuring providers and consulting on the right repair every day for hundreds or even thousands of claims we might take in in any given 24 hour period. Depending on how bad it rained and when the last cold or warm front came through.

The next time you're looking for a home warranty, definitely get one from Residential Warranty Services at http://www.ResidentialWarrantyServices.com in order to ensure you get the best return on investment, and the next time someone tells you warranties aren't worth it...just smile and nod

Here's a picture of 100+ people in Carmel Indiana ready to serve your needs and immediately.
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This message was edited 1 time. Last update was at 01/18/2018 02:52 PM EST

P. Nathan Thornberry
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Joined: 01/09/2022 12:14 PM EST
Messages: 44
Location: Tallmadge, OH

Nathan, in looking this one appears to be for the home owner paid by the homeowner.

I believe you have one for inspectors as well, or is this tied in somehow? I've only recently began looking in to the warranty stuff for inspections.

Point Man Home Inspection
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