The reason is very simple. About 85% of the home warranty amount is absolutely profit and commission to the people. It is unbelievable—the vast majority. About 12% of the extended warranty or the home warranty or the electronics warranty is actually the risk that you’re taking. In other words, the cost of the average item breaking down within the warranty period usually runs about 12%. The rest of what you’re paying is profit, commissions, overhead and marketing costs. I would rather just take the chance. Put $. 88 in my pocket of every dollar—$888 of every $1,000 that I would’ve spent on warranties and $12 in savings, and on average, I’m going to cover the breakdown that those warranties would’ve covered. The big items, you transfer the risk on. That’s why we buy life insurance.
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All systems and appliances must be in proper working order on the Effective Date of the service contract, as set forth in the schedule page accompanying this Agreement. Any pre existing conditions or defects causing the malfunction of system or appliance during the term will not be covered by this Agreement. If a defective or malfunctioning system or appliance is discovered by an inspection company prior to the transfer of ownership of the property or by a utility company at the time of the transfer of ownership, said condition shall be deemed a pre existing condition and not covered under this Agreement. 6. 1. 2.