Water Pipe Insurance Is a Bad Deal. This is Why You Should Avoid It

Water Line Break in Yard
Water Line Break in Yard. Getty / Cenari

You may have received an official-looking notice from your local water company saying something like:

Important Information Regarding Your Water Service Line.  Response Requested Within: 30 Days

Because it is apparently from your water company, the outside of the mailer is black and white and barcoded and serious.  No funny stuff here.

This is enough to prompt most homeowners into opening the envelope and reading on.

 

In the enclosed letter, you may find out that your "water service line could fail without warning," resulting in financial near-ruin in this hard economic times because it could "cost you thousands of dollars in unforeseen expenses."

For a low monthly price, your buried water line could be covered by water pipe insurance.  At the bottom is the disclaimer that this letter comes from a company that is separate from your local utility. 

What This Offer Is

Its proper name is exterior water service line protection, but its nickname is water pipe insurance. 

The offer is that, should the exterior water service line to your property fail, this "insurance company" will pay your claims to repair the line, from foundation's edge to property line (or well, should you have private water service). 

A water service line is only the pipe that brings fresh water into the house; it does not include pipes that carry away wastewater.

One prominent company, Home Emergency Insurance Solutions ("HEIS"), offers to pay up to $12,000 per year in claims, in four separate calls of $3,000 each.

Enticingly Frightening

Next to having a tree fall on your house or water heater flood your basement while you are on a 3 week long European vacation, few home-related problems are as frightening as a plumbing line breaking on your property.

 

We have all seen homes with front yards torn up; maybe even experienced this ourselves.  Grass is obliterated because the backhoe has ripped it up.  Next to the four foot-deep trench are masses of sheet plastic covering piles of dirt.  Rain fills the trenches.  It is not a fast project because dirt-work never is fast.

Neighbors or relatives speaking about their problems always quote prices well into the thousands.  Hearing these prices makes you glad that your system is working well, and at the same time unleashes the cold fear in your heart that tells you that your house will be next.

HEIS hits those fear notes by telling you, in the mailer, that this water service line is "buried underground on your property [and] could fail without warning."

But Will Homeowners's insurance Cover It?

Another selling point of water pipe insurance is that your homeowner's insurance will not cover repairs or replacement to your exterior water line.  True or not?

While your insurance may differ, one common homeowners insurance policy from Liberty Mutual (a GEICO company) states that outside water pipes were not expressly excluded.  However, the provision that

This coverage does not apply to land, including land on which the dwelling is located.

rules out the possibility that water lines would be covered.  The Liberty Mutual policy is all about covering your home--the physical structure--as well as adjacent properties like garages and sheds.

So, on that point, HEIS is most likely correct.

Company Background

HEIS is an off-shoot of HomeServe USA, which is not an insurance company. But HomeServe USA is organized under Wesco Insurance Company ("Wesco") umbrella, itself owned by holding company AmTrust Financial Services. 

Wesco is essentially privately owned one family: billionaire brothers George and Michael Karfunkel and Michael's son-in-law, Barry Zyskind.

Even though this is a private company, it further confuses matters that parent HomeServe USA has a partnership program with municipal water districts, in which HomeServe is contracted out to take care of "home emergencies." 

When you see a page full of government logos on HomeServe's site, it is easy to think that they have some quasi-official status. 

This is a doubly sweet deal for HEIS. Not only do the government affiliations provide more business for them but it gives the company a greater air of legitimacy.

Why It Is Not a Good Bargain

A few things that edge this offer closer toward the gray-area are:

  1. Rare That It Will Happen: Hudson, NY's Register-Star quotes Daniel Kenneally, foreman of that town’s Water and Wastewater Plant for 27 years, as saying that it's “very rare” for water service lines to break. He notes that he has never heard of anyone having to replace their water line.
  2. Freeze-Proof; Won't Get Damaged By Yardwork: Water service lines are buried 2.5 feet deep and often deeper.  All water supply lines are buried below the frost line. If frost is not a concern, they are still buried deep in order to stay clear of normal work a person might perform on a yard. So the question is: What might cause the supply line to break?
  3. Water Supply, Not Sewer: Those scary trenches you see in people's yards? Surprise: these are usually sewer pipes, not water supply pipes. Many sewer pipes are over 100 years old and are made of clay. No wonder they break all the time. 
  4. Limited Coverage Per Occurrence: HEIS says they will cover up to $12,000 in claims per year.  Generous, right?  No.  This provision is the biggest rip-off of all. Reading on, you see that it is broken up into four occurrences, at $3,000 each. What that means is that your broken water problem must cost $3,000 or less to fix; the remaining 3 coverages are inconsequential because they apply only to those particular occurrences. They cannot be lumped together.
  5. You Must Use Their Own Technicians: HEIS/HomeServe has its own network of technicians, which limits the pool of available help. If the plumber is not with the company, his work will not be covered.

Summary

This plan is not worthwhile, other than providing peace of mind for a few bucks a month.

 Statistically speaking, there is little chance that your water line will break. 

For that matter, their Exterior Sewer/Septic Line Insurance Protection a bit more plausible, because--as noted earlier--this is the line that tends to fail.