Alarm System Contracts- What is hidden inside?

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Along with the purchase of an alarm system there will be Alarm System Contracts and this has changed drastically over the years. The business model has completely changed. Once upon a time you would have a salesman come over to your home and provide you an estimate for the type of alarm system that you wanted. You would pay a deposit and then the balance would be due once the alarm system was installed.

Alarm System ContractThe term Free alarm never came into the conversation but now that is all you hear. It is not necessarily a bad thing if you recognize what is really going on. First of all, nothing is actually free. You must look at it as a payment plan over the term of your contract. Whether you are a huge company like ADT or a small Mom and Pop alarm company you still have to purchase the alarm equipment. The more volume an alarm company does the better pricing they get and they may pass that savings along to you but in either case the equipment is not free. The price of the alarm equipment is paid back over the course of the contract. In many cases the equipment cost takes most of the 3 years before the alarm company is into profit. Alarm companies typically bank on you as a customer maintaining the monitoring for at least 7 years which is the average. At this point the alarm company is making profit each and every month. That is why in order to compare alarm companies you must look at the total contract value when you compare. Alarm Company contracts will include early termination fees if you try to cancel prematurely.

Make Sure You Read the Fine Print

Contract or Payment Up Front

You may be able to pay for your complete system upfront so the equipment is not included in your monthly monitoring. Many alarm companies will not install a system without a monthly contract. I worked for a company as a salesman and I was told that I could do this type of sale but I must include the entire 3 years of monitoring into the sale price. That was completely ridiculous but that is why it is important to compare pricing with at least 3 alarm companies.

Another point to keep in mind is if there is any possibility that you may move. Some alarm companies have a feature to move your alarm system if you change locations. Otherwise you would be forced to pay early termination fees or try to have the new owner take over the monitoring contract.

This is another added benefit to a wireless alarm system opposed to a system. Keep in mind that a DIY Home Security System will not have any cost associated with a move because you are doing the work yourself. Even if an alarm company can move your system for you it may not be free to reinstall.


Alarm companies providing home security systems must be licensed by the Bureau of Security and Investigative Services (Bureau or BSIS) to:

  1. Sell alarm systems on a consumer’s premises.(1)
  2. Install, service, repair, and monitor alarm systems.(1)
  3. Respond to alarm activations.(1) (The person responding can be an alarm agent(2) or a private patrol operator’s security guard.(3)

Retail stores may sell alarm systems without being licensed, but only at the store, and they may not perform any alarm company functions. Alarm companies, including those located outside of California that monitor systems in California, must also possess a BSIS license. (1)

Local governments may require alarm system owners or renters to pay a fee and obtain a permit to operate an alarm system. Likewise, alarm companies may need to obtain a business permit.(4)


Alarm system monitoring contracts may contain an automatic renewal clause that automatically renews the contract beyond the original terms unless the consumer cancels it in the manner specified in the contract. Effective January 1, 2017, consumers must be provided a written notice if the alarm contract presented to them includes an automatic renewal provision that renews the contract for a period of more than one month. Prior to signing the contract, the consumer is to acknowledge receipt of the disclosure by signing or initialing it. If this written acknowledgement is not provided by the consumer, the automatic renewal provision in the contract is invalid. Be consumer wise and ask if the contract contains an automatic renewal provision.


  1. Verify that an alarm company, qualified manager or agent is licensed with the Bureau prior to conducting business with them. Use “Verify a License” on the Bureau’s website at or call (800) 952-5210 to check on the license status of the company or person.


You may file a complaint with BSIS against an alarm company, alarm qualified manager, and/or alarm agent. Complaints the Bureau has received include unlicensed activities, contract and installation agreement issues including rollover or evergreen renewal provisions, and unauthorized monitoring services. You can file a complaint online at or by calling (800) 952-5210.

Bureau of Security and Investigative Service
2420 Del Paso Rd., Ste. 270
Sacramento, CA 95834

A Brief Industry History

Wonder why most alarm monitoring service is so expensive? A brief industry history shows you why:

There are currently over 20,000,000 alarm monitoring customers in the U.S. For the last twenty years the industry has been structured such that the “monitoring” revenue subsidizes the non-monitoring operations of the Alarm Company. This was a necessary part of maintaining a more predictable cash flow for the Alarm Company. With the entry of large investment companies into the alarm industry monitoring rates were increased dramatically to subsidize installation of new alarm systems. There is nothing wrong with this practice and it served to expand the markets of the alarm industry dramatically.

At the same time that the large companies were increasing the size of the industry the smaller companies were struggling to compete with the lower installation prices from subsidized systems. The number of companies shrank from 15,000 to 5,000. Now all the small companies were much more reliant on the increased ‘monitoring’ rates to subsidize their falling sales.

Points to Be Certain of with an Alarm Contract

  • Term of agreement: What is the expiration date of the agreement?
  • Notification for termination: How much notice is required before the end of the agreement in order for the agreement to not automatically renew? Does the contract provide for canceling the service?
  • Penalty for termination: If you cancel your service before the end of the contract period is there a penalty? What is it?
  • Ownership of Equipment: Who owns the equipment? Will the Alarm Company remove the equipment? If the monitoring agreement doesn’t stipulate who owns the equipment, you own it.
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