Definition
A Residential Service Contract (RSC) is an insurance contract or home warranty typically lasting for one year. It is designed to cover the costs associated with repairs or replacements of major home systems, such as plumbing, mechanical, and electrical systems. Often available upon the purchase of an existing home, this contract can be paid for by either the home buyer or seller.
Examples
Example 1: Ricky and Rebecca Miller Ricky and Rebecca Miller purchase a home. As part of the purchase agreement, the sellers pay $500 for a residential service contract. Three months after moving in, the air conditioner compressor breaks down, requiring an $800 repair. Under the terms of the contract, the Millers are required to pay a $100 deductible, with the remainder of the repair cost covered by the residential service contract.
Example 2: Jane Doe Jane purchases a pre-owned house and opts to invest $600 in a Residential Service Contract. Six months into her stay, her home’s water heater fails, necessitating a repair costing $700. The contract stipulates a $50 deductible, so Jane pays $50 while the RSC covers the remaining $650.
Frequently Asked Questions
Q: What does a Residential Service Contract typically cover? A: A Residential Service Contract usually covers the costs related to repairing or replacing major home systems like plumbing, mechanical, and electrical systems. Some contracts may also cover appliances and other home components.
Q: Who pays for the Residential Service Contract? A: Either the buyer or the seller of the property can pay for the Residential Service Contract, depending on the terms negotiated during the purchase agreement.
Q: Are there any deductibles involved in a Residential Service Contract? A: Yes, most Residential Service Contracts involve a deductible that the homeowner must pay when a repair or replacement is needed. The remaining balance is covered by the contract.
Q: How long does a Residential Service Contract last? A: A Residential Service Contract generally lasts for one year, but it can be renewed annually.
Q: Can I purchase a Residential Service Contract any time? A: Yes, while typically purchased during the sale of an existing home, homeowners can opt to purchase a Residential Service Contract at any time.
Q: Are all repair costs fully covered by the Residential Service Contract? A: Not always. While major repairs are frequently covered, some contracts might have caps or exclusions that limit the amount covered.
Related Terms with Definitions
Home Warranty: A service agreement that covers the repair and replacement of home systems and appliances.
Deductible: The amount paid out of pocket by the policyholder before the home warranty or Residential Service Contract pays for repairs or replacements.
Home Inspection: An examination of a property’s condition, typically performed when the property is put on the market for sale.
Buyer Protection Plan: An insurance plan offered to buyers to protect them against major repair costs just after the purchase of a new or pre-owned home.
Maintenance Contract: An agreement between a homeowner and a service provider outlining the terms for regular maintenance of home systems or appliances.
Online Resources
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American Home Shield: https://www.ahs.com/
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Home Warranty of America: https://www.hwahomewarranty.com/
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Angie’s List - Home Warranty Reviews: https://www.angi.com/
References
- National Home Service Contract Association (NHSCA): https://www.homeservicecontract.org/
- Federal Trade Commission (FTC) - Home Warranties: https://www.ftc.gov/tips-advice/business-center/guidance/home-warranties-how-choose
Suggested Books for Further Studies
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“The Home Warranty ABC’s” by Elizabeth Willard Thames
An introductory guide covering the essential aspects of home warranties. -
“Your Home Warranty Guy: Guide to Home Warranties & Protection Plans” by Tom Moiriarty
A comprehensive overlook of home warranties and how they can benefit homeowners.
