When looking at protection for your vehicle, you’ve likely heard of both car insurance and car warranty. These terms are often used interchangeably, but they are very different. Car insurance is legally required in most states, with some locations even requiring drivers to carry additional coverage. Car warranty, on the other hand, is not required by law despite the benefits it can offer.
What is Car Insurance?
Car insurance covers damage to your vehicle that may have been caused by accidents, theft, or some other event out of your control. This coverage can pay for auto repairs, medical expenses, and other damages that may have resulted from some type of accident. Car insurance will also
cover you financially if you are the liable party for an accident. By filing an car insurance claim, a policy holder informs the insurance company of what occurred, and the company will determine how much of the fault is on the policyholder and the amount that will be covered.
In most cases, car insurance policies have a deductible. This means you need to pay up to a certain amount out of pocket before the policy kicks in. As a note, a car insurance policy will not cover repairs stemming from normal wear and tear or mechanical breakdowns.
The Different Types of Car Insurance
Car insurance does not come in one single form. In some cases, you may need to have more than one type of insurance to legally drive on the road. The most common forms of car insurance include:
- Liability Insurance: This form of insurance is one of the most common and helps keep you covered if you are at fault for the accident or damages. This can come in two forms: property or bodily injury. Property liability insurance will pay for damages to another vehicle whereas bodily insurance will help cover medical bills.
- Uninsured Motorist Insurance: Some drivers break the law and drive uninsured. If you are in an accident with such a driver and have uninsured motorist insurance, it will cover any of the damages inflicted to you or your vehicle by that person.
- Collision and Comprehensive Insurance: In some cases, damage can happen without another car being involved. If that happens, collision insurance can help cover the damages resulting from this. Alternatively, comprehensive insurance will help pay for damages resulting from natural disasters or other similar, uncontrollable events.
- Personal Injury Protection: This form of insurance covers medical expenses due injuries resulting from a car accident.
- Gap Insurance: Gap insurance is best for those who have not paid off their vehicle loan completely. In this situation, gap insurance will help pay off what remains on the loan.
What is Car Warranty?
On the other side of things, a car warranty also keeps your vehicle protected, but from mechanical breakdowns and part repairs. The key distinction between car insurance and car warranty, is that a car warranty will not cover damage resulting from an accident. There are two primary forms of car warranty:
Most new vehicles come with a factory warranty from the manufacturer, which lasts for an average of 36,000 miles or three years. During this time, any mechanical issues will be fixed for little-to-no cost. Factory warranty is usually structured to specifically protect against manufacturing defects or production issues.
An extended vehicle warranty is a secondary type of warranty that can be added to a vehicle when the factory warranty expires. These can be offered by the manufacturer or dealership where the car is purchased, but they are sometimes offered by third-parties and called vehicle service contracts. Extended warranty packages typically come in two forms:
- Bumper-to-bumper coverage: This form of coverage usually protects the electronic components of a vehicle or the air conditioning, but doesn’t usually protect normal wear and tear items like tires
- Powertrain coverage: Extended warranty packages that offer powertrain coverage typically cover the engine and transmission.
When Do Policies Kick In?
Figuring out when car insurance vs. car warranty starts to kick in can help a person understand who they can turn to in order to get financial assistance in the event of an accident or breakdown:
A car insurance policy will only kick in after an accident, disaster, or when medical expenses become a factor. If your policy has a deductible, the plan won’t kick in until that deductible has been met. For example, if your deductible is $1,000 and you get into an accident that causes $5,000 in damages, you will pay $1,000 and the plan will pay the remaining $4,000.
A car warranty is technically always active. When a mechanical breakdown occurs or there is an issue with a part under the hood, not resulting from an accident, then the repair cost will be covered if it’s included with your car warranty. With a car warranty, it’s more important to understand when it expires, as this is when you will be left unprotected from mechanical breakdown.
Is Car Insurance or Car Warranty Better?
The question of whether insurance or warranty is better for a driver is complicated due to the differences between the two. However, car insurance is required legally whereas car warranty is not, which means that insurance is typically better to have. With that in mind, a factory or extended warranty can offer protection that insurance doesn’t.
In an ideal world, a driver would have both insurance and warranty. This means that they will receive financial protection in the event of an accident and when mechanical breakdown occurs. After all, the average annual cost of owning a new vehicle is nearly $10,000, which goes to show the importance of having both insurance and warranty. When your factory warranty expires, take the steps necessary to maintain protection by considering investing in extended warranty.
Maximize your protection on the road
Car insurance and car warranty are equally important, but only insurance is required legally. Despite this, choosing to add factory or extended warranty to your vehicle can maximize the financial protection your vehicle and you have. Evaluate your current vehicle and its reliability to determine if adding a car warranty in addition to your insurance is right for you.