A Guide to Car Insurance vs. Car Warranty

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When shopping for a new car, you must know the difference between car insurance and a car warranty. In some situations you’ll decide you need both insurance and a warranty, while in other cases you’ll decide you should forgo a warranty.  Regardless of vehicle type, the primary difference between car insurance and a car warranty is what each covers.

Whether you drive an old classic or brand-new vehicle, you want to ensure that you have the proper protection in case you need it. The best way to determine the best option is to look at what it covers. 

Below we’ll explore the difference between the two and when you need each. 

What is a Car Warranty?

A car warranty guarantees you will not be held responsible for replacing or repairing defective or malfunctioning car parts or systems. Car manufacturers guarantee these car parts and systems will function correctly for a specified period at the time of purchase. If they malfunction, the manufacturer’s warranty kicks in and pays for the costs to repair or replace what’s not working correctly.

What is Car Insurance?

Car insurance is an agreement between you and the insurance company that provides a layer of financial protection for damages to your car or damages caused to someone else’s car or personal property. If you are liable for bodily injuries that result in medical bills, lost wages, or pain and suffering, your car insurance covers that, too. Your policy can also kick in to pay for damages you may incur due to a natural disaster, such as fire, hurricane, tornadoes, vandalism, or theft.

Keep in mind that there are varying levels of auto insurance coverage, so the level of protection you receive will depend entirely on your policy. 

When choosing the best auto insurance policy for you and your family, there are many things to consider. You must decide if you want a car insurance policy that provides the minimum insurance coverage limits legally required by your state or a full coverage policy that better protects you in case of an accident or vehicle damage, regardless of who or what is at fault. 

Most car insurance companies also offer add-on services like towing, rental car reimbursement, medical reimbursement or MedPay, and loss of income pay if you are injured and unable to work due to a car accident. 

What’s the Difference Between Car Insurance and a Car Warranty? 

Car insurance and car warranties both offer protection but in very different ways. 

Car insurance covers damage caused by unexpected events such as auto collisions, weather-related events such as hail, falling tree limbs due to strong winds, or cracked windshields due to falling objects. 

Suppose you are involved in an at-fault accident, and the other driver and passengers are injured. In that case, your insurance company may cover 

  • Vehicle Costs: It can pay to repair your vehicle and the other party’s vehicle damage
  • Medical Costs: It can cover related medical expenses, including ambulance, hospital, doctor, and physical therapy bills
  • Other Costs: It can pay for additional expenses such as lost wages, in-home medical care, funeral costs, and legal fees

On the other hand, car warranties cover more anticipated events, such as the parts and labor associated with mechanical breakdowns. Often, mechanical breakdowns result from manufacturing issues that are not a result of driver misuse or neglect.

Having a car warranty policy that covers the repair costs and labor for mechanical issues that are no longer covered by your car’s manufacturer’s warranty may make good financial sense.

Repairing vital car components and systems such as engines, transmissions, heating and cooling, and electronics can be expensive. A car warranty that eliminates that financial burden can provide well-earned peace of mind.

What Does a Car Warranty Cover?

tow truck towing a vehicle

When you purchase a new or newer car, it comes with a warranty from the manufacturer for a set number of years or miles, whichever comes first. An extended or service warranty is optional protection that can be purchased beginning when your manufacturer’s warranty expires, and it often covers the same parts, components, and systems. The terms of an extended warranty can vary but are usually aligned with the same terms as the original manufacturer’s warranty.

Several types of warranties come with your vehicle at the time of purchase or that you can purchase for additional costs. These warranties cover damages to your car that are not a result of normal wear and tear, driver misuse, or neglect. 

The warranty pays the repair shop for parts and labor for systems and components of your car that are not working due to defects or malfunctions not caused by you.

Different Types of Car Warranties

Buying a new car is an exciting time; the last thing you want to consider is something going wrong with your engine, transmission, or internal systems in the future. That’s where a car warranty comes in handy. It gives you peace of mind knowing you won’t be hit with costly repair bills if something goes wrong with your car.

Let’s take a look at five of the most popular car warranties. 

Bumper-to-Bumper Warranty

As the name indicates, a bumper-to-bumper warranty pretty much covers thousands of parts, systems, and components of your vehicle from the front to back and nearly everything in between. Ironically, the actual bumpers are not covered.

What a bumper-to-bumper warranty covers

  • Engine
  • Transmission
  • Navigation System
  • Braking System
  • Steering System
  • Suspension System
  • Fuel System
  • Electrical System
  • Electronic System
  • Air Bags 

What a bumper-to-bumper warranty does not cover

  • Wear and Tear
  • Windshield Wipers
  • Bumpers
  • Tires
  • Brakes
  • Oil Changes
  • Scratches
  • Driver Damage
  • Routine Maintenance
  • Vehicle Modifications
  • Acts of God

Powertrain Warranty

mechanic working on vehicle

A powertrain warranty is a limited warranty that provides protection and covers the costs to repair parts of your car responsible for creating and delivering power to your wheels.

What a powertrain warranty covers

  • Engine
  • Transmission
  • Axle
  • Shaft
  • Differential
  • Transaxle
  • Driveshaft
  • Transfer Case

A powertrain warranty does not cover anything that doesn’t directly provide power to your vehicle, including brakes, radiators, hoses, compressors, suspension, steering parts, wheels, and tires.

Federal Emissions Warranty

The Federal Emissions Warranty can be viewed as an extended warranty for certain emissions components in your vehicle, regardless of who owns the vehicle. 

According to the United States, Environmental Protection Agency, “…emission control warranties protect you, the vehicle owner, from the cost of repairs for certain emission-related failures that result from manufacturer defects in materials and workmanship or that cause your vehicle to exceed federal emission standards..”

If you live in an area that requires smog testing or Inspection and Maintenance testing, your vehicle might be eligible for cost-free testing and repairs if it failed an inspection due to the emissions controls covered under warranty.

Performance Warranty

During the first two years or 24,000 miles of owning your vehicle, the Performance Warranty will pay the costs to repair your emissions control to make it eligible to pass your local emission testing requirements. In addition, this warranty extends its protection for the first eight years or 80,000 miles for more specific emission control parts and components. 

Design and Defect Warranty

The Design and Defect Warranty covers the costs to bring your car into emissions compliance if the defect was caused by defective materials or workmanship. This warranty also remains with the vehicle, regardless of the owner, for two years or 24,000 miles, or whichever comes first. The protection also extends to eight years or 80,000 miles for certain parts. 

Are Car Warranties Worth It?

Deciding to purchase a car warranty depends on your circumstances. New cars come with a manufacturer’s warranty that covers the costs of repairing your vehicle if it malfunctions due to defective parts and components for a certain number of years and miles. 

However, you may buy an extended warranty when purchasing a new or used vehicle. An extended warranty can vary, but the idea is to choose one that provides you financial support if your car breaks down from issues not caused by misuse, neglect, or wear and tear.

These warranties can save hundreds if not thousands of dollars and many headaches compared to the out-of-pocket costs to repair major car components such as engines, transmissions, and electronics.

The decision to purchase a car warranty has its pros and cons and should be given significant consideration. 

Do You Need Car Insurance and a Car Warranty?

Car insurance and car warranties are not the same and provide different levels of coverage protection. Both car insurance and car warranty insurance pay the costs to repair certain repairs to your vehicle. 

Ultimately, whether you purchase a warranty is an option, but car insurance isn’t. It all depends on the level of risk you’re willing to take.

Car insurance is required in 48 states, so you don’t have much of a decision regarding whether you need car insurance coverage or not. 

However, a warranty is different because you don’t need one. 

When deciding whether you’re going to purchase a warranty, you can consider several factors, such as how reliable the vehicle you’re purchasing is. 

If it’s known for having engine issues after driving a certain number of miles, you might invest in a warranty. Or if you know you have a few thousand dollars you can spare if your car has an issue, you might choose not to invest. 

So, ultimately, while you don’t need both car insurance and a car warranty, your decision to purchase them or not will depend on your financial situation and the level of risk you’re willing to take. 

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Frequently Asked Questions About Car Insurance and Car Warranties

What is the difference between a car warranty and car insurance?

Car warranties pay repair costs for mechanical breakdowns and failures that may result from defects that occurred during the manufacturing process. These failures include systems like heating and cooling, electronics, engines, and transmissions.

Car insurance pays to repair your vehicle when you’re involved in a car-related accident or if damage occurs due to non-collision-related incidents such as fire, hurricanes, falling tree limbs due to storms, cracked windshields from rocks, theft, and vandalism. 

Is it worth getting a car warranty?

Getting a car warranty may be worth it if you want your coverage to continue after the factory warranty expires. 

Regardless of the type of car warranty, you may consider purchasing, the most significant benefit is having peace of mind knowing that you will not be hit with an enormous repair bill if your car breaks down. 

If the financial burden of having to pay for possible car repairs is not an issue for you, the upfront costs of a car warranty may not be worth it.

Does having a warranty lower car insurance

Overall, having a car warranty does not save you money on the costs of full-coverage car insurance. However, some warranties may reduce your premium for liability coverage. It’s always a good idea to check with your auto insurer for additional ways to save on your car insurance. 

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