If you’re thinking about installing a home security system, one of the things you’ll have to do is sign an alarm system monitoring contract. Just about every alarm company will require that you sign a contract, and a standard alarm contract is for a term of 3-5 years.
Most people never read the contract, and they have no idea that they are committing to a 3-5 year agreement until they try to cancel their service. Even if you read the contract, chances are you have no idea what any of it means anyway, so I thought it would be helpful to write out some of the most common things you’ll find in most contracts.
Before signing an alarm system contract, remember that this is a two-way deal. Most alarm systems sold today are either free or sold at a discount. If the alarm company gives you a free or discounted system, they expect to make their money back plus profit over the next three to five years.
Make sure you do your homework about the alarm company you are hiring and the equipment they will be installing before signing any contract.
Why do you have to sign a 3-5 year monitoring contract?
Years ago, there was no such thing as a free alarm system or 5-year contracts. If you wanted an alarm system for your home, you would pay full price for your alarm system and sign a one-year agreement.
Today things have changed. Alarm companies make very little or no profit on installing alarm systems. Sometimes, the system is installed at a loss to acquire the new customer, especially if they offer you a free alarm system.
Therefore they need to extend the contract term over three to five years to make their money back plus a profit.
Also, keep in mind that the monthly payments you pay to them are not all profit. They still have operating expenses. Ideally, alarm companies want to make their money back within 12-18 months after acquiring a new customer. They will keep that customer for much longer than the contract’s original 3-5 year term by providing excellent service.
What exactly is in the alarm contract?
All alarm system contracts are very similar because the alarm companies must limit their liability to obtain liability insurance. About 75% of the contract you sign is to limit the insurance company’s liability. Insurance companies will not provide coverage to an alarm company unless they have signed contracts from every customer.
What are you agreeing to when you sign a monitoring contract?
Below is a condensed version of a standard alarm contract. I kept it short; otherwise, you would fall asleep reading it.
Signing an alarm system contract can be very intimidating because they are usually two pages long, but as you read on, you’ll see that it’s not that bad.
1. Service charges: You will pay the agreed amount for monitoring plus tax every month billed either monthly, quarterly, semiannually, or annually in advance.
2. Terms of agreement: The length of the contract will be one to five years and will renew month to month until the customer cancels in writing with 30 days prior written notice.
Alarm contracts used to renew for the original agreement term, so if you had a five-year contract, it would continue for another five years unless you canceled it in writing before the contract ended. But this type of renewal did not hold up in courts because it was unfair.
3. Central Office Monitoring: The alarm company agrees to monitor your alarm system and provide you with a reliable monitoring service, but you are responsible for ensuring the equipment is in working order by testing it weekly and not tampering with the communication software.
4. No warranties or representations: You agree that the alarm system will not prevent any loss, damage, or injury to you or your property because of burglary, fire, theft, hold up, or any other cause.
This means that having a security system does not prevent you from getting robbed, and having a smoke detector does not prevent your house from burning down. Security systems are detection devices; they are not meant to prevent losses.
5. Exculpatory Clause: You agree that your alarm company is not an insurer, and they offer no insurance coverage. You must retain your own insurance.
6. Limitation of liability: You agree that the alarm company’s liability is limited to $250 if the alarm system fails to perform as it was intended.
7. Care of communication equipment: You agree not to tamper or prevent the communication equipment from transmitting a signal to the central station.
8. Alteration of premises for installation: You agree to allow the alarm company to drill holes in your house to install wiring and equipment.
9. Subscribers’ duty to provide electricity: you agree to provide power for the alarm system to work properly.
10. Testing and servicing of the alarm equipment: you agree that once installed, the alarm equipment is your sole possession, and it is your responsibility to make sure it is in working order.
If there is a problem with the alarm system, you must contact the alarm company for service.
11. Legal action: You agree not to sue the alarm company for any reason.
12. Transmission of data: You agree that the alarm company relies on third parties such as telephone companies and cellular providers to transmit the alarm signals. They are not responsible for failure caused by the third party.
13. Indemnity waiver: You agree to hold the alarm company and its employees harmless against all claims and lawsuits.
14. Insurance: You agree to have a certain amount of insurance to cover any damages to you or your property.
15. False alarm fees: You agree that you are responsible for all false alarm fees.
If you have multiple false alarms, you will be fined by your local police department, and you are responsible for paying them.
Can You cancel your alarm contract early?
No, you usually cannot cancel your alarm contract early, but that depends on the alarm company you are working with and your reason for canceling.
If you are moving, you might cancel the contract if the new homeowner wants to continue the monitoring service.
If you are hiring one of the larger nationwide companies, you will have a more challenging time canceling your contract for any reason.
Take ADT for example; the last time I checked, they had seven million customers, so you can imagine how many customers are trying to cancel every month.
When dealing with such a large corporation, you are just another number, and they don’t care why you want to cancel. They have legal departments dedicated to collections, and you are no match for them. It will cost you more to fight the contract than just paying what you owe.
On the other hand, working with a small local company makes you more likely to get better service because you are an important part of their business.
They rely on having a good reputation in the community and referrals from their customers, and they want to keep you as a customer for a long time, but should you need to cancel your contract, they might be more understanding and let you out of the contract.
What if you’re not happy with the alarm company’s service?
If you’re not happy with the service or equipment you received, you are stuck with what you have.
All alarm companies try to do the right thing for their customers, they’re not out to scam you or rip you off, but there is a point where a company can’t find quality employees to service their customers, especially when it comes to working in someone’s home.
I’ve been installing and servicing security systems for over 20 years, and I would not allow 90% of the installers and technicians out there in my home to do any work.
I am partial to small local alarm companies where the owner is involved in dealing with the installation and service of the system.
The alarm industry is very competitive. The alarm company’s number one goal is to acquire new customers at the lowest price and get enough customers to offset the accounts they are losing every month.
Most companies lose about 10 – 20 % of their accounts every year due to people moving, switching to other alarm companies, not needing an alarm system anymore, or not being able to afford the monthly payments.
Homeowners are conditioned to think that alarm systems are free, and very few people are willing to pay for quality equipment and professional installation.
So, many large companies are replacing their veteran technicians with younger, less experienced technicians and paying them a fraction of the salary.
Most alarm companies are afraid to propose adequate protection for your home because they’re afraid the price tag will be too high, and they will lose the sale to another company.
With so much competition, companies have lost track of what is important. It seems that no one cares about the alarm system itself anymore; it’s the alarm monitoring contract they want.
Because of these factors, there is a higher chance that you will have issues with your alarm system than you might not have had years ago.
Before you sign a contract, you should do your research, find out what brand of equipment the alarm company wants to install, and check the reviews. All alarm systems are not the same regarding quality and reliability.
Ask how long you will have to wait if you need a service call? Some companies make you wait for 3 to 4 weeks before they come out to repair your system, while others may be there the same day or the following day.
Ensure you are getting enough protection on your doors and windows; it’s best to alarm every door and window if you can afford it.
What is the point of alarming just the doors in your house and not the windows? And think about fire and carbon monoxide protection as well.
Can I cancel my alarm contract if I move?
Technically no, you can’t cancel the contract if you move. You are still responsible for the remainder of the agreement unless otherwise stated in the contract. Still, some companies will let you out of the contract if the new homeowner takes over the monitoring of the alarm system.
Other companies will let you continue the monitoring at your new house but don’t expect any discounts on the installation of the new alarm system unless you renew to a full three or five-year contract.
When can I cancel my alarm contract?
Alarm monitoring contracts are covered by the federal trade commission’s three-day cooling-off period, which means you have three days to change your mind after signing an alarm agreement.
You must be given this notice when signing a contract. You initial the form to confirm that you received two copies. If you decide to cancel the contract, sign, and date the form and mail in one copy. I would recommend you mail it by certified mail with a receipt.
Because of this, most companies will wait at least three days before performing the installation to avoid having to remove all the equipment should you decide to change your mind.
Try to find a company where the owner comes to your house for the sale. If he does the installation himself, that’s even better.
You will most likely call him directly when you have any issues. Always ask what the installation price will be with a one-year contract, it might only be a few hundred dollars more, and it might be worth paying a little extra for a shorter contract.