Residential Service Contracts (Home Warranty)


When you are buying or are selling a home, the real estate agent offers to sell you an extended service contract. These contracts can be a blessing if a major problem occurs, but you may not realize what is and is not  covered by your contract.

What Is a Service Contract?

A service contract is not a warranty. A warranty must come free of charge, but you pay extra for a contract. A brand new home may have a warranty provided by the home builder. Don't be confused by the fact that some service contract companies use the word "warranty" in the names of their companies.

A service contract also is not an insurance policy. If you decide to purchase a service contract, compare it to your homeowner's insurance policy to be sure you aren't purchasing duplicate coverage.

Do You Need a Service Contract?

What extra benefits and/or extra repairs are covered by the service contract? Read the contract carefully for any conditions you have to meet. Who is responsible for checking for pre-existing conditions?

How much will the contract cost you? Prices range from $375 to $1500 and usually cover a one-year period. If you did not purchase the contract, would you be able to afford a repair if it happened during this period?

Read Your Contract

  1. Check the contract for your responsibilities. You usually need to call the contract company, and they send out the repair people. Are you required in certain cases to get a second opinion?
  2. What does the contract say about repairing or replacing parts? Most contracts state the decision to repair or replace a part, such as the furnace, is their decision. If they decide to replace, the company usually gets to replace with an equivalent product. For example, you would receive a washer with similar functions, but not necessarily the same brand name.
  3. Is there a deductible? If there is a deductible, verify if it is for each service call or for each repair. For example, assume your deductible is $25. If the plumbing broke in the kitchen and the bathroom and only one service call is made, do you pay $25 or $50?
  4. Can you transfer the contract if you sell the house? If yes, what procedures do you need to follow?
  5. Can you get a refund if you want to cancel? Cancellation policies are often based on the time used and charge a cancellation fee.

Your Rights

  • In Iowa the contract is required to contain certain disclosures. This includes the information mentioned above, plus it must tell you clearly what is and is not covered under the contract. Most contracts state that if a part is not named in the covered sections, it is not covered. Most contracts also state that they will not cover pre-existing conditions. It also should contain the name and address of the insurance commissioner.
  • The contract companies must file with the Iowa Securities Bureau. You may contact us to see if they have filed.

Questions or Complaints?

If you have questions or complaints about the motor vehicle service contract, contact:

Iowa Securities Bureau
Regulated Industries Unit
601 Locust St. - 4th Floor
Des Moines, IA 50309-3738