Car Warranty vs Insurance: Should You Get Both?
Michael Collado is a car buying expert and has been a professional automotive writer since 2009. He’s written about dealership sales, vehicle reviews and comparisons, and service and maintenance for over 100 national automotive dealerships. Previously, Collado was a copywriter at the ad agency TBWA/Chiat/Day where he worked on brand campaigns for Nissan, ABC Television, Sony PlayStation, and Energizer. His recognition in the ad industry includes awards from Communication Arts and The Clios.
Collado has a Bachelor’s degree from the University of South Florida, with a major in Psychology and a minor in Marketing.
You probably already have insurance on your car (hopefully… if not, please do that and then come back), but now you’re buying a new car, and they’re asking if you want an extended warranty, too.
Do you need one? Insurance should be enough, right?
I’m here not only to help you find the best car price but also to help you save money where you can. And part of that includes figuring out what the heck a warranty is and if you need one.
Table of Contents
- What Is a Car Warranty?
- Types of Car Warranties
- Are Car Warranties Worth It?
- What Is Car Insurance?
- Coverage Options
- What Are the Differences Between Car Warranty and Insurance?
- Does a Car Warranty Cover Accidental Damage?
- What Is Mechanical Breakdown Insurance?
- Which One Is a Better Value: Warranty or Insurance?
- Roadside Assistance and Coverage
- Best Car Deals by Category
- Frequently Asked Questions
What Is a Car Warranty?
A car warranty is coverage offered for certain maintenance and repairs, typically repairs that may be caused by defects or malfunctions that aren’t caused by the driver.
These warranties are offered by either the car manufacturer on new and used cars or, in the case of an extended car warranty, a third-party company. Warranties offered by manufacturers sometimes include additional services like emergency roadside assistance or towing.
These warranties rarely, if ever, cover any damage that happens as a result of improper maintenance or misuse on the driver’s part or damage from an accident or vandalism.
Types of Car Warranties
Warranties come in different levels and types of coverage, so let’s look at what each of the different types of warranty covers.
Bumper-to-bumper car warranties cover the whole car from, you guessed it, bumper to bumper.
These warranties are also referred to as basic warranties, and they’re generally the most popular type of warranty.
A bumper-to-bumper warranty typically includes the following:
- The Powertrain (Engine, Transmission, Differential, etc)
- Electrical Parts
- Audio System
- Air Conditioning
These warranties are offered on new vehicles for the first three years or 36,000 miles, whichever comes first.
A powertrain warranty is limited to the components of the vehicle’s powertrain, and coverage typically lasts for 50,000 to 100,000 miles.
Parts of the powertrain that are covered include:
- Drive Box
- Transfer Case
Whereas the first two types of car warranties are only offered by the dealership or manufacturer, people have the option to buy an extended warranty from a third party. Manufacturers do often offer an extended warranty for an additional cost.
Extended warranties start right after your original manufacturer’s warranty ends.
Third-party extended warranties typically cover more than the extended manufacturer’s warranties.
Manufacturer extended warranties typically cover the same things as the original manufacturer warranty, just for a longer time.
Third-party extended warranties often offer more flexibility when it comes to allowing drivers to choose which repair shops they want to use, roadside assistance, coverage for after-market parts, and accommodating payment plans.
Are Car Warranties Worth It?
It kinda depends.
Manufacturer warranties that come automatically with the purchase of a new vehicle are, of course, worth it because… well they’re free.
Purchasing an additional warranty has its benefits and its drawbacks. On one hand, you can save hundreds or even thousands of dollars on costly repairs on things like the transmission, a new fuel pump, or the engine. You can also benefit from things like roadside assistance and flexible payment options.
On the other hand, if you don’t end up needing any large repairs, you’ve invested possibly thousands of dollars for no reason. Even if you do end up using it, the warranty may end up being more expensive than the repair itself, so you’re still out on money.
If you want peace of mind that you won’t have to fork over thousands of dollars on unexpected repairs, we recommend going with a third-party extended warranty over a manufacturer’s one. If you just don’t have the money after purchasing a new car, it might be better for you to skip it.
What Is Car Insurance?
Car insurance is a different beast altogether.
Car insurance covers damage to your vehicle or another vehicle if you’re liable for that damage. It can also pay for medical bills if you, your passengers, or another driver involved in a crash need medical attention for injuries sustained in the crash.
To get this coverage, vehicle owners have to pay a monthly or yearly premium.
There are many factors that go into how much drivers will need to pay for car insurance, including where they live, their age, and what kind of car they drive. In 2022, the average yearly cost of car insurance is $1,630 per year.
It’s worth noting that all states (with the exception of New Hampshire) have a legally required minimum amount of coverage for vehicle and bodily damages.
Just like with warranties, there are a few different types of car insurance.
Comprehensive car coverage covers damages to your car from any events outside of your control. Any non-collision claims are typically covered by this type of insurance.
This includes things like windshield or glass damage, theft, vandalism, falling trees, fire, natural disasters, and extreme weather.
With a new car, at some point, there will come a time when you owe more on your car loan than the current value of your car, also known as being “upside down” on your loan.
Since car insurance payments are based on the current value of your car, if your car gets totaled or stolen, your payout will not be enough to cover the remaining balance on your loans.
Gap insurance will cover the difference in the value of your car and the amount you still owe on your car loan if you total your vehicle while upside down on your loan.
The term liability insurance applies to different types of insurance, including bodily injury liability insurance and property damage liability insurance.
Liability insurance, both bodily injury and property damage is the minimum required coverage in 49 states (excluding New Hampshire).
Bodily injury liability insurance covers the other party’s medical bills if you are found at fault for the accident.
Property damage liability protection covers any repairs to the other party’s vehicle or other property, including fences or houses, if you’re at fault for the accident.
Liability insurance does not cover any property damage done to your car or injuries that you sustain.
Collision insurance covers any damage done to your own car as a result of any accident, including a collision with another car, tree, or phone pole, an accident while your car is parked, or a crash that involves only your vehicle, like a roll-over accident.
Collision doesn’t cover any accidents with animals, any bodily injury done to your or any other party, or any damage that happens as a result of any of the causes listed under comprehensive coverage.
Personal injury insurance, also known as no-fault insurance, covers any bodily injury caused to you and any passengers in your car, no matter who is at fault for the collision.
This also covers personal injury inflicted on you while you’re not driving a car, like if you get hit by a car while riding your bike or crossing the street.
What Are the Differences Between Car Warranty and Insurance?
The differences between a car warranty and car insurance include what is covered, the cost, and whether or not there are vehicle age or mileage limits.
Car insurance is required to protect other drivers if you’re found at fault for a collision, and car warranties are not required.
|Car Warranty||Car Insurance|
|Length of Coverage|
|What It Covers|
Some warranties provide roadside assistance and towing.
Personal injury coverage covers any medical bills you or your passengers need regardless of who was at fault for the accident.
Comprehensive coverage covers damages caused by factors outside of the drivers control.
Collision coverage covers any accidents.
Gap insurance covers the difference in price if you're upside down on your loan and your car gets totaled.
|What It Doesn't Cover||
Personal injury insurance doesn't cover property damage or injury of other drivers.
Comprehensive coverage doesn't cover medical bills or damage caused by collisions.
Collision coverage doesn't cover events like natural disasters or anything outside the driver's control.
Gap insurance only covers the difference between your insurance claim and th original value of the car.
|Vehicle Age/Mile Limits|
|When to Purchase|
Read our YAA review
Read our Endurance review
Does a Car Warranty Cover Accidental Damage?
No, a car warranty does not cover accidental damage.
What Is Mechanical Breakdown Insurance?
Mechanical breakdown insurance is an added layer of protection to add on to your regular car insurance policy for newer cars.
This insurance is similar to a warranty as it covers breakdown, replacement, or repair issues for cars under 15 months old or under 15,000 miles.
Which One Is a Better Value: Warranty or Insurance?
Insurance, though more expensive, is more likely to be used, while many drivers who purchase an extended warranty never use it and end up paying for nothing.
Car insurance is also legally required, while warranties are optional.
Roadside Assistance and Coverage
Roadside assistance is often offered both by car warranties and car insurance policies.
This coverage is often offered 24/7 and entails having a mechanic essentially on call who can come to your location if you need a tire change, gas, oil, a new battery, to get into a car when you’ve locked your keys inside, or to jump your car.
Best Car Deals by Category
Frequently Asked Questions
Are car insurance and warranty the same?
No, car insurance and a car warranty are not the same.
Do you need car insurance?
Yes, you need car insurance to drive legally.
Is paying for a car warranty worth it?
A car warranty is with it if you want peace of mind that you’re covered if something major goes wrong with your car. Depending on your financial situation, a car warranty may not be the best option for you.
Should I get a warranty in addition to car insurance?
You should get a warranty in addition to car insurance if you want additional security that you’ll be covered, but if you don’t have the money, it’s okay to skip it.