A home warranty has a unique purpose for homeowners. Outside of the insurance sector, there is a similar segment of the consumer economy that sells service contracts and full compensation for the replacement or repair of defective products. Think about any major electronic purchases you’ve made in the past few years, and you’ll likely remember that someone has provided you with protection for your purchase under the manufacturer’s warranty or not. The home warranty is similar. This only covers household parts or larger appliances and systems, not a single item such as a TV set.

A home warranty can be a useful service when choosing a good company that keeps its promises. However, the industry, like everyone else, has unhappy customers and businesses for acting unfairly or failing to meet their obligations to consumers. In this industry, one thing that often causes dissatisfaction is the rejection of claims. Customers who complain about defective dishwashers or air conditioning components are unwilling or unable to pay for repairs out of pocket. For this reason, most consumers choose the Housing Guarantee first. So, if the company refuses to pay for a repair or replacement, the customer will be upset.

However, rejected claims are in some cases only a symptom of a larger problem. Not all states require a license from home warranty companies. Some that require a license have very strict rules, including regulations that require the company to maintain a security guarantee to protect customers from the bankruptcy of the company. Other states may only take the most basic approach to regulate this kind of service.

States such as Washington, Texas, Florida, and California are very active in responding to consumer complaints about home warranties. These states also have a lot of control over how licensed companies do business with their residents. Although he cannot control the activities of companies, he tries his best to protect the interests of consumers. One way to do this is by requiring companies that sell home service contracts to have a specific license, a registry that must be kept up to date and comply with state regulations.

From the customer’s point of view, perhaps the most important aspect of government regulation is the current status of the company considering contract purchasing. If the business is licensed in the consumer’s family state or in the state where the property is held, there is at least some history of the company and its reputation.

If the state does not require the inclusion of corporate governance or regulation of housing contracts, customer protection is certainly less. However, the mere lack of regulation does not put companies at greater risk. The red flag that consumers should be aware of is a company that is not licensed but operates in a state subject to legal requirements, including licensing. Things like deposit, reinsurance, and other legal requirements should be part of the purchasing process. If a consumer ignores this important step, they can easily buy a contract from a new company, have no real financial support, and fail to follow the rules to ensure that consumers do not receive a worthless paper.