It's not always clear what home warranties cover

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A home warranty is supposed to provide a measure of financial protection against problems that aren’t detectable before the buyer takes possession.

But home warranties might not provide the financial security buyers expect, because some of the largest companies don't make clear how they cover preexisting conditions.

If you have a warranty, make sure you have enough money in the bank to take care of the problems yourself in case it doesn’t come through.

I asked each of the three largest companies to clarify their policies, but none were willing to go beyond their contract definitions.

American Home Shield is the market leader by a wide margin. The company’s sample contract says that in order for a system or appliance to qualify for repair or replacement, it must "become inoperative due to normal wear and tear" and be "in good working order on the effective date of this contract."

But how is "normal wear and tear" defined? We don't know.

The second-largest company, First American, has similar exclusions in its policies. Policies vary by state, but let’s take California as an example.

Its contract "provides coverage for unknown defects if the defect or malfunction would not have been detectable to the buyer, seller, or agent through visual inspection or simple mechanical test. This contract provides coverage for systems and appliances which malfunction due to lack of maintenance, rust or corrosion, or chemical or sedimentary buildup.”

How does the company decide what's undetectable? Again, we don't know.

The third-largest company, Old Republic, has similar contract language.

The sample contract for California states, "We will provide service for covered systems or appliances reported as malfunctioning during the term of the Plan that . . . B) Were correctly installed and working properly on the effective date of the Plan, and C) Have become inoperable due to normal wear and use after the effective date of the Plan. Preexisting conditions are not covered."

Finally, a clear policy on preexisting conditions. They aren’t covered. Right?

The contract continues, "Coverage may apply to a malfunction which existed on the effective date of the Home Buyer’s Coverage if, at that time, the malfunction was undetectable and would not have been detectable by visual inspection and simple mechanical test."

Home warranty companies may intend for their contract language to protect themselves against fraud.

But these contract provisions can be confusing for homeowners.

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