Furnace & AC Extended Warranties: Buyer beware

Over the past 10 years or so, the cost of new furnaces and air conditioners has been steadily rising due to increasing energy efficiency standards. As a result, homeowners have become more interested in extended warranties in order to protect their investment.

Unfortunately, as the Air Conditioning Contractors of America warns, many contractors are providing “valueless warranties.”

The problem rests on the fact that many heating & air conditioning installation companies are giving out extended warranties when they do not intend to perform the repair work themselves. These include installation specialist companies (including companies who specialize in new home installations), some subcontractors for big box stores, and general renovation companies. They sell the new furnace including the extended warranty, with the intention that service companies will perform any necessary repairs.

Some of these warranties are sold by the manufacturer, and some are sold by dedicated warranty companies. Often, the labour rate can be selected. For example, the installer could select a warranty that will pay the service company $50/hour, $100/hour, or $150/hour for repairs.

Unfortunately, most warranties sold are at the lowest level possible, and the number of hours paid for each job is also typically low. For example, for a major repair such as an inducer motor replacement, a contractor might normally charge for 4 hours at $100/hour for a total cost of $400. But a warranty might only pay $50/hour for 2.5 hours, or $125 total, for the same repair. This has resulted in many (probably most) service companies charging additional processing fees for warranty work, or else only serving warranty customers when they aren’t busy, or a combination of the two.

Here are some things to keep in mind when buying a new heating or AC system with an extended warranty:

What are the payouts? Who is providing the warranty? Prices for a 10-year extended parts & labour warranty on a new furnace range from less than $100 to over $1000, depending on the provider and the payout level selected. As you can imagine, the amount the warranty company will pay to the service company varies accordingly. One warranty might pay $250 for a given repair and another $50 (which might not even be worth filling out the paperwork for).

Some wholesalers now charge for warranty parts processing. As reported in Contracting Business magazine, some wholesalers are starting to charge warranty processing fees for parts covered under warranty, so you might still have to pay these fees (in addition to the service company’s warranty processing fees).

How much paper work is necessary? How will the service company even locate it? To avoid fraud, some warranty companies are requiring greater amounts of paperwork to be filled out. The above mentioned magazine article described a warranty company that requires “a copy of every tune-up sheet since the system was installed, as well as a wholesale parts invoice and a job invoice signed by the customer, plus their extended warranty form.” This requires a lot of work on behalf of the service company. Furthermore, unless your warranty was provided by one of the more popular manufacturer’s in your area, service companies may be unaware of the warranty’s requirements and where to acquire the paperwork. In this case, for minor repairs, the service company might inform the homeowner that it’s not worth it to go through the warranty process.

Annual maintenance is required to keep warranties valid. This is the case with all the major manufacturer’s warranties and with most extended warranty providers as well.

If the warranty is backed up by a service company, how long have they been in business? According to the US Small Business Administration, heating & AC companies have the second highest failure rate of all business types, behind only restaurants. If a company that has only been in business for 2 years is offering 10 year labour warranties, this may be a cause for concern.

The bottom line:

Unless you bought your extended warranty from a company that also provides service and you have been performing regular maintenance, your labour warranty is likely of little value.

To schedule a service/repair, call 604 GOOD GUY (604 466 3489) or use our online form.

To schedule a free quotation on a new heating or air conditioning system, call 604 GOOD GUY (604 466 3489) or use our online form.

Learn more about your maintenance and repair options on our services page.

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