Car Insurance vs. Car Warranty: A Guide

What are the key differences between these seemingly similar coverage options?
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Ross Martin

Insurance Writer

  • 4+ years in the Insurance Industry

Ross joined The Zebra as a writer and researcher in 2019. He specializes in writing insurance content to help shoppers make informed decisions.

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Kristine Lee

Insurance Analyst

  • Licensed Insurance Agent — Property and Casualty
  • 4+ years of Experience in the Insurance Industry

Kristine is a licensed insurance agent who joined The Zebra in 2019 as an in-house content researcher and writer. Before joining The Zebra, she was a…

Whether you’re driving an old beater or a brand new vehicle, you’ll want to protect against unforeseen damages — either with your car insurance policy or your car warranty. But do you need both?

The answer to that question may depend on your individual situation. In order to make that decision, you'll need to know the difference between a car warranty and a car insurance policy. Understanding the pros and cons of both will allow you to make an informed choice that will benefit you and your wallet.

How does car insurance differ from a car warranty?

Auto insurance is a contract between you and an insurance company, in which you pay a pre-set amount of money each month in exchange for coverage in the event of a collision or incident. Car insurance may also cover costs during the transition period between totaling a car and purchasing a new vehicle.

Unlike car warranties, car insurance is not optional and won't cover mechanical or equipment breakdowns. To legally drive a car in the U.S. — in any state aside from New Hampshire — you must carry an active auto insurance policy. A lapse in insurance coverage may end up raising your current car insurance rates, future quotes, or resulting in a ticket.

Car insurance coverage options

While state-minimum auto insurance is legally required in order to register a vehicle, you can choose to add or subtract coverage options. Most states require a minimum of liability coverage. Other options to consider include:

While those listed above are the standard coverage options, you can also request additional coverage options. If you’re struggling to understand the difference between car insurance and car warranty, you might have confused car warranties with mechanical breakdown insurance.

Mechanical breakdown insurance (MBI)

MBI is very similar to a car warranty. It protects your car in the event it sustains damage outside of an accident. It can be purchased as an additional endorsement, instead of through the car dealer (as you would with a car warranty).

What is a car warranty?

While car insurance protects a vehicle after an accident, a car warranty covers repair costs due to malfunctions.

Also known as a manufacturer’s warranty, car warranties are primarily used as buffers against sudden, dramatic financial loss due to a car defect.

Car warranties cannot be used to cover parts that break due to “wear-and-tear," including windshield wipers, tires and brake pads.

A typical car warranty is valid for three years or 36,000 miles — whichever comes first.1

What is a vehicle service contract?

A vehicle service contract functions similarly to MBI or a car warranty, but a vehicle service contract (VSC) is brokered by a third party. You can purchase a new one at any time. Often confused with an extended warranty, a vehicle service contract can provide coverage after you purchase a used vehicle, or when the warranty on your current car expires. If you purchase a vehicle service contract, you are not working with the insurance company or the manufacturer, and your contract will not be governed by as many regulations.

Car warranties for certified pre-owned vehicles vs. used vehicles

There is a difference between a certified pre-owned vehicle (CPO) and a car that has had a previous owner prior to your purchasing it. A CPO has been officially approved by its manufacturer to be in good, drivable condition. If the car you’re looking at is a CPO, most manufacturers will offer an extended warranty.

Extended warranties kick in after the first warranty has expired, covering the CPO for another 60,000 miles — or three years from your purchase. With a non-CPO vehicle, your options are a bit different, but you can still be covered. An aftermarket warranty is essentially an extended warranty for non-CPO vehicles.

With a CPO, all or part of a car warranty will be transferred to you when you purchase it. Purchasing a non-CPO car can be risky: if the vehicle breaks down, you could be left without protection and facing a steep maintenance bill.

Car warranties explained

A car warranty can be confusing — let's answer some frequently asked questions.

What does a car warranty cover?

Car warranties come in a variety of packages: powertrain, inclusionary, and exclusionary.

  • A powertrain warranty is the least comprehensive, covering only the bare necessities — like the engine.
  • An inclusionary warranty is more comprehensive, covering a specific list of components.
  • An exclusionary warranty acts as a safety net, as the highest level of coverage aside from a manufacturer's warranty.

What voids a car warranty?

There is a difference between a voided policy and what the policy simply won’t cover. Most warranties are fairly flexible. The only thing that will immediately void a policy is if your car is given a salvage title and declared a total loss. In other cases, there may be more wiggle room.

A modification to the vehicle generally won’t void your warranty, and you can still use aftermarket replacement parts for repairs. However, the warranty won’t cover an aftermarket part after it breaks, so be sure to avoid using unproven components.2

Warranties also do not cover components broken during a race or competition — including off-roading — of any kind. Furthermore, warranties won’t cover parts that are broken due to neglect or misuse.


Do warranties transfer to the new owner if I sell my car?

If it's a new car, warranties usually transfer to the new owner. Warranties are tied to the vehicle identification number (VIN) and will remain valid — even if ownership changes — through the end of the original warranty period.

For used cars, if there's a manufacturer's warranty still remaining, it should still be valid for the new owner. Just remember that car warranties begin on the in-service date, not the model year. The day you drive off the lot with the vehicle, the warranty begins. So if you bought a 2020 model sedan in 2019 with a three-year/36,000-mile warranty, and sell it in 2021, its warranty will expire in 2022.

The same applies to certified pre-owned vehicles (CPO). As mentioned above, if the original warranty has expired, most manufacturers will offer an extended warranty. Keep in mind that many manufacturers also charge a fee ($50-$100) to transfer the CPO warranty.3

Does a car warranty cover routine maintenance?

Car warranties never cover regularly scheduled maintenance — it is the owner's responsibility to keep up with the maintenance of their vehicle. Neglecting to maintain the car can actually void the warranty. The owner's manual will have a detailed guide on what maintenance tasks should be completed, and when.

Do you need car insurance and a car warranty?

While car insurance is non-negotiable, you do have an option of whether or not to purchase a car warranty.

Let’s review the benefits and drawbacks of car warranties:

Car warranty pros
  • Peace of mind. As with a home warranty, the main benefit is simply not having to worry about unexpected costs.
  • Customization. You can choose from different coverage levels or negotiate with car warranty companies for a deal that works best for you.
Car warranty cons
  • They don’t cover everything. Like home warranties, most car warranties have limitations on the types of repairs — or amount of repairs — they’ll cover.
  • It's usually a better deal for the warranty company than you. A survey found 55% of participants that paid for an extended warranty never used it for repairs and the median price for the warranty was over $1,200.4

Are car warranties worth it?

If you’re really looking for the best deal, remember you don’t need to buy a car warranty from the dealership. Remember: a car warranty is not required — if you can't afford it, ensure you stay current on your auto maintenance and repairs to avoid breakdowns.

Many cars come with factory warranties covering the same things as an extended car warranty. Most factory warranties last three years.

If you want to extend this coverage after three years, you may want to consider a car warranty.

Other car warranty options

If a car warranty isn’t your cup of tea, alternatives exist.

  • Roadside assistance: Covers towing costs and tire changing if the car breaks down during travel
  • Rust or corrosion warranty: Covers rust in sheet metal parts of the car
  • Federal emissions warranty: Covers repairs needed to correct defects in parts that would prevent the car from meeting Environmental Protection Agency standards

Compare car insurance options to make an informed decision.

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About The Zebra

The Zebra is not an insurance company. We publish data-backed, expert-reviewed resources to help consumers make more informed insurance decisions.

  • The Zebra’s insurance content is written and reviewed for accuracy by licensed insurance agents.
  • The Zebra’s insurance editorial content is not subject to review or alteration by insurance companies or partners.
  • The Zebra’s editorial team operates independently of the company’s partnerships and commercialization interests, publishing unbiased information for consumer benefit.
  • The auto insurance rates published on The Zebra’s pages are based on a comprehensive analysis of car insurance pricing data, evaluating more than 83 million insurance rates from across the United States.