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Car warranty vs. car insurance

Compare coverage, requirements and providers

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by Kathryn Parkman ConsumerAffairs Research Team
CARCHEX, Endurance Auto Warranty and CarShield
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Car warranties and car insurance are two common ways to protect your vehicle and yourself. They have some similarities — both can provide peace of mind in the event of an accident or breakdown. They're very different in terms of coverage, requirements and providers, however.

Difference between warranty and insurance

Car insurance protects against accidents, whereas warranties help cover mechanical failures caused by a defect. For example, if your car breaks down because of a transmission problem, the cost of repairs could be covered by a warranty. But if your car is in an accident on the road, your insurance pays for the damages.

What’s actually covered by either depends on the terms of your plan or policy. The terms will also outline deductibles (how much you pay per claim), premiums (how much you pay for the policy) and coverage limits (the maximum payout for each covered item).

With car insurance, you typically pay each month, every six months or once a year for coverage. Extended car warranties can be purchased upfront or financed over time, typically within one to three years.

Car insuranceCar warranty
Legally required
Covers breakdowns
Covers damage caused by accidents
Vehicle age and mileage restrictions
Average costs$1,000 to $2,000 (per year)$1,000 to $3,000 (total)
Financing available
Car insurance$1,000 - $2,000 (per year)
Car warranty$1,000 - $3,000 (total)

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    What to know about car warranty coverage

    An extended car warranty is also called a vehicle service contract. It’s referred to as an extended car warranty because it provides similar protection to a manufacturer's warranty but for a longer period of time.

    These policies are valid for a set number of years or miles. What’s covered depends on the terms of the warranty you purchase. Some common coverages are listed below. For additional information, read our extended auto warranty guide.

    Stated component coverage specifically lists everything that’s covered and can vary by company. On the opposite end, an exclusionary warranty covers everything except for specific items listed in the contract. This is considered one of the most comprehensive types of coverage — it's easier to list what isn't covered rather than what is covered.

    Understanding the different types of coverages will make it easier to compare plans. Some options to consider include:

    • Drivetrain: Drivetrain warranties cover the transmission, axles and driveshafts.
    • Powertrain: Powertrain warranties cover the engine, transmission and drivetrain components of a car.
    • Bumper-to-bumper: Also called an exclusionary plan, bumper-to-bumper warranties can cover all major vehicle systems. Systems or components not covered are listed in the warranty.
    • Corrosion: A corrosion warranty specifically covers the cost of repairing damages caused by rust and other environmental factors.
    • Wrap policy: A wrap warranty protects what isn’t covered by a powertrain warranty. It extends the time of the bumper-to-bumper coverage (which includes repairs for everything on the vehicle except things that wear out with time, like brakes) so that it lines up with the length of the powertrain warranty.
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    What to know about car insurance coverage

    Car insurance is legally required in all 50 states to protect drivers, passengers, other motorists and pedestrians in the case of an accident. Car insurance companies offer policies to cover the body of the vehicle, medical payments that might be required after an accident, the cost to rent an additional vehicle during repairs and more.

    Each state sets its own minimum for liability coverage, and many motorists choose to add more.  The right plan for you depends on several factors, including whether or not you're still paying off your car. For some, liability and collision protection are considered the most essential.

    If you're financing your car, the lender will likely require you to have full coverage, which includes liability, collision and comprehensive insurance. Nearly all car loan lenders require this protection until the loan is paid off.

    Car insurance companies don’t sell extended warranties. However, they can offer additional coverage types, such as car repair insurance or mechanical breakdown insurance (MBI), which function similarly to traditional extended warranties. Overall, some of the most common coverages available through car insurance companies include:

    • Liability: Liability coverage pays for other people’s medical care or property (either bodily injury to another motorist or property damage to a vehicle or home) that you cause in an accident.
    • Collision: While liability coverage covers someone else’s property, collision coverage pays for the damage to your vehicle, including from one-car accidents or hitting a pothole.
    • Comprehensive: This part of your insurance covers damages to your vehicle that aren’t caused by an accident, such as an earthquake, break-in or theft.
    • Uninsured motorist: This part of an insurance policy covers the cost of an accident or medical payment if someone without insurance hits you.
    • Medical payments coverage: Also called personal injury protection (PIP), medical payments coverage is for medical payments and services. In some cases, it may cover funeral costs as well. PIP is required in some states, but not all.
    • Gap coverage: Usually reserved for newer cars, gap insurance helps pay the difference between what’s left on a lease or loan and what the company will pay in the case of a total loss.
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    Car insurance vs. car warranty: do you really need both?

    All drivers are required by law to have car insurance, but a car warranty is not a statutory requirement. So, legally, you don’t really need a warranty for any car. If your car insurance policy includes repair insurance or MBI, you probably don’t need both. Otherwise, having both can offset unexpected costs.

    Most cars break down over time, whether or not you get in an accident. An extended warranty is worth it if you worry about the financial burden of paying for expensive vehicle repairs. Many top-rated plans come with emergency roadside assistance and rental car reimbursements — these perks can come in handy.

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    by Kathryn Parkman ConsumerAffairs Research Team

    As a member of the ConsumerAffairs Research Team, Kathryn Parkman believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase, which is why she spends hours researching companies and industries for ConsumerAffairs. She believes conscious consumption is everyone's responsibility and that all content deserves integrity.