Homeowners are often surprised to learn that damage to the underground water-sewer lines connecting their homes to service isn’t always covered by their municipality or by their homeowners insurance. But a new report on private service-line warranties—increasingly marketed as a solution—contends that these plans confuse consumers and may be largely unnecessary.
- Water-sewer line warranties cover damage to underground pipes in a homeowner's yard.
- Consumer advocates say they’re concerned about how these plans are marketed and question how necessary they are.
- Standard homeowners insurance policies typically don’t cover exterior supply line repair, but a service-line rider may be available as added coverage for a small premium—without the need for a separate warranty.
How Service Line Warranties Work
Consumers’ Checkbook, a Washington-based nonprofit consumer advocacy organization, recently examined the scope and value of utility companies’ partnerships with third-party water and sewer warranty providers nationwide. It found that more than 7 million U.S. homeowners have purchased these warranties, often assuming their local public utility either directly offered or endorsed them.
While in most cases they’re not selling a regulated insurance product, service line warranty providers aim to help cover an insurance gap that exists between your home and the nearest water main. If the water main breaks, your city is responsible for fixing it. But you’ll often be responsible for repair or replacement of the supply line connected to your house—unless your homeowners policy includes a special endorsement to cover such loss.
Market leaders in the service line space are American Water Resources (AWR) and HomeServe USA, which sell standalone warranties covering water and sewer line failure and repairs. They promise to use plumbers, contractors, and technicians familiar with local codes, and schedule and complete the work.
Of 54,000 water systems in the U.S., Consumers’ Checkbook found that 1,300 currently partner with AWR or HomeServe. But deals between utilities and warranty services are becoming more widespread, the report noted, and include major municipalities like New York City, Orlando, and San Francisco.
The National League of Cities also endorses a service line warranty program through a partnership with HomeServe that counts more than 650 cities and towns as participants, according to its website.
In exchange for lending their names and logos, utilities that sign on to help market these warranties get a share of the premiums collected.
AWR and HomeServe say they’re providing protection for problems that could cost thousands of dollars to fix and filling a need that municipalities and utility companies can’t provide.
In a statement to Investopedia, a HomeServe spokesperson says the company believes the Consumers' Checkbook report "ignored key facts and reached a conclusion that in no way reflects the real experiences of and the value we bring to our partners and customers. In partnerships with over 1,000 municipalities and utilities who trust us to serve their residents and customers, HomeServe is able to educate homeowners about their responsibilities—as many are unaware that they are responsible for repairs to the utility lines on their own property—and provide access to low cost, optional peace-of-mind plans."
Misleading and Unnecessary?
The Consumers’ Checkbook report maintains that consumers could be misled—both about the reality of the risk and the origin of these types of contracts.
Consumer advocates say they’re concerned about the way these plans are often marketed. For example, many offers come by mail on letterhead bearing the utility company’s name and seal, notes the Consumer Federation of America (CFA). Packaging that makes it appear as if the offer is coming directly from a utility company or public agency, "is a strong indication that the product does not stand on its own merits," Douglas Heller, the CFA’s insurance expert, told Investopedia.
And other research shows that even with aging infrastructure, water lines can be trouble-free for many years. A study by Utah State University’s Buried Structures Laboratory found that on average, utilities have a 125-year replacement rate on water main pipes nationally.
What Homeowners Should Do
Before signing up for a water-sewer service warranty, consumer advocates advise homeowners to:
- Gauge the odds of water-sewer line problems vs. what they'd pay over time for a warranty. Consumers’ Checkbook’s review of warranty plans showed typical costs of $4 to $13 per month for the coverage. It also found evidence that while water-sewer line breakdowns can occur, claims for catastrophic restoration and repair are rare, amounting to a less than 1% incidence rate in many regions. “The actual amount of claims is very low, meaning it’s a product that most people won’t ever use,” says the CFA’s Heller. “If less than 1% of buyers ever use it, is it worth it?”
- Consider the age of your home. If your house was built before 1950, underground service lines that run from the street to your structure could be made of older materials more susceptible to wear and tear, leaks, or tree-root invasion. Newer construction in newer neighborhoods may not have this issue.
- Ask your insurer about a service-line rider for your homeowners insurance policy, which some, but not all, carriers offer as an endorsement to a standard policy. Unlike with an unregulated warranty service plan, you’ll have the backing of your insurer, possibly more comprehensive protection, and control over the repair work and which contractors you choose.
- Use the money you’d spend on a warranty plan to instead build up an emergency fund to cover any future repairs.