Car Warranty vs Car Insurance: What’s the Difference?
There are many differences between a car warranty and car insurance. For one thing, a car warranty is never required but is sometimes provided upon purchase of a vehicle. An extended auto warranty is hardly ever required, at least not by the state. Car insurance is a whole other matter. If you do not carry the required minimal coverage based on your state’s requirements, you are not only liable for expensive damages if you find yourself in an accident, but you will also be charged with an infraction or misdemeanor. What that means is that you’re possibly looking at hundreds of dollars in fines and jail time, plus probation.
Car warranties and car insurance are also different in that they serve different purposes. Car insurance is intended to cover a loss. Warranties cover maintenance and breakdowns, which car insurance usually does not (you can buy breakdown insurance, however). According to Consumer Reports, 55%, or the majority, of warranty buyers never use the coverage. However, those who do use it are often grateful they bought it. You could also say that statistically most people hardly ever use their car insurance too, but the ones who find themselves in car crashes are sure glad they have it. And so are the people pulled over for a driving offense!
Below, we break down the differences between car warranties and car insurance so you can decide which works best for you or if you need both types of coverage.
What Does a Car Warranty Cover that Auto Insurance Doesn’t?
First you should ask yourself, What is an auto warranty? Sometimes, it’s called a car warranty, but it’s also referred to as an “aftermarket car warranty” or “vehicle service contract.” Car insurance is not the same thing as a car warranty. You may have one or the other and some people have both. Your car insurance won’t cover the costs of mechanical breakdowns or if you’re experiencing malfunctions on specific car parts. There may be a defect in your car or you may need repair on your vehicle but you’re paying to do so out of pocket if you don’t have a warranty.
An extended auto warranty can be bought at the same time as the initial car warranty, which is often included in the purchase of a car from a dealership. After the first expires, the extended one sets in to offset the cost of repairs or replacement.
What Types of Car Warranties Are There?
There are all kinds of car warranties out there and the best extended auto warranty will include some of the coverages listed below. Different auto warranty companies offer different products and you’ll find variations in names. Look closely at what they offer before you buy to make sure it includes the coverages you’re looking for.
- Bumper-to-Bumper Extended Warranty. This covers air conditioning, stereo, vehicle sensors, fuel systems and electrical components in the car. Usually, regular maintenance is included, like fluid and oil changes. This type of warranty is also sometimes called an exclusionary warranty or new-vehicle warranty.
- Powertrain Warranty. This warranty covers the engine and transmission. It also covers any parts that are connected to the wheels, like the driveshaft. Powertrain warranties often include seatbelts and airbags. Regular maintenance (oil change, tire rotations) are not usually included.
- Drivetrain Warranty. This warranty covers transmission, driveshaft, wheels and axle. It does not cover the engine.
- Car Maintenance Warranty. This warranty covers just what it says it covers, service for air filters, oil changes, tune-ups and the like. Sometimes, car maintenance warranties are included in a new car purchase and can also be bought at dealerships as a vehicle service contract.
- Performance Warranty. If your car fails an emissions test, this warranty will cover repairs or adjustments for at least two years or 24,000 miles.
- Design and Defect Warranty. This warranty covers at least two years or 24,000 miles if the emission controls fail without testing.
- Factory Accessories Warranty. This warranty covers audio systems, engine modifications and all sorts of custom additions. Make sure to notify the warranty company if you’ve modified any accessories after they were installed.
- Wear and Tear Plans. With this coverage your interior, upholstery and paint are covered. Usually, deep cleanings are covered with this protection too.
- Corrosion/Rust Warranty. Repairs due to rust or deterioration of metals are covered with this, but some manufacturers provide lifetime protection so you may not need it.
What Else Does the Manufacturer Warranty Cover?
Like the corrosion warranty mentioned above, some things are covered by manufacturer warranties but the average consumer doesn’t know these warranties exist unless they ask. These quietly protective warranties are sometimes called “policy adjustments” or “goodwill services.”
Always call the manufacturer whenever something breaks down. You never know when one of these warranties will apply. Sometimes, all it took was buying the car without any additional expenses to be covered. Asking never hurts.
What Does Car Insurance Cover that an Extended Auto Warranty Doesn’t?
If you have liability insurance, which is mandatory in every state at minimum, you are covered if you and your car cause damage to another car or someone’s personal property or even to a pedestrian. In some states, you are required by law to carry other coverages in addition to liability insurance. There are also 12 no-fault states in which you are required to carry personal injury protection (PIP) insurance on top of liability coverage. These no-fault states are: Kansas, Kentucky, Florida, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New York, Pennsylvania, Utah and North Dakota. Puerto Rico is also a no-fault territory.
Collision coverage is not required by law. If you have collision insurance and are at fault, you’re covered for repairs after paying the deductible. You choose your deductible amount when you first purchase your insurance (usually $250, $500 or $$1000). For more details about what collision insurance covers, visit here. Despite popular belief, it’s not always wise to buy collision coverage. For instance, if your car is worth less than what you pay in coverage (you only get paid out the Kelley Blue Book value of a car).
Comprehensive coverage is not required by law. If you have comprehensive insurance you’re covered for cracked windshields, vandalism/theft of your car and if you hit an animal. Just like with collision coverage (above), you have to pay a deductible first before your coverage pays for the rest of the loss. For more details about what else comprehensive insurance covers visit here.
There are other types of coverage you can add on to customize an auto insurance policy. For instance, gap insurance is a form of protection that is very valuable if you owe more on your car loan than the car is worth according to its blue book value. For more about gap insurance, visit here.
How Much Does an Extended Warranty Cost?
Warranty prices vary according to the seller and the type of warranty you buy. A Consumer Report survey from 2014 found that the median price for cover was just over $1,200. The median out-of-pocket savings for those who had to use their warranty was $837.
How Much Does Car Insurance Cost?
Again, this figure varies significantly from one driver to another and requirements differ in each state. With that said, according to a National Association of Insurance Commissioners’ report, the average cost to insure a car in the U.S was $815 in 2012. Since then, rates have risen in nearly every state due to a whole host of reasons that include distracted driving and the rising prices in cars with the latest safety features.
There’s never any reason for you to overpay for insurance, and you should always get multiple quotes to compare prices and coverages. You should also check rates every so often (every year or two at least). A reliable way to get fair rates from trustworthy agents is to visit SmartFinancial.com for multiple free quotes from top insurers.
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