Anyone who has ever owned a “lemon” (a car that’s a dud) knows how stressful and costly car repairs can be. But is it your car’s warranty that covers certain fixes? Or is it your car insurance policy?
What’s the difference between car insurance and a car warranty?
“When it comes to the car itself, warranties are intended to cover malfunctioning parts, and insurance is intended to cover overall damage or loss of the vehicle if it occurs as the result of a crash, fire, or weather event,” explains Neil Richardson, licensed insurance agent and adviser at The Zebra.
Further, nearly all drivers have to get car insurance to protect themselves and others against major financial risk. A car warranty, on the other hand, provides optional coverage for repair issues that may come up while you own the car. Let’s break ‘em down…
What Does Car Insurance Cover?
We’ll start with car insurance, as it’s our bread and butter here at The Zebra.
The first thing you need to know is that if you’re a driver in the U.S., you legally have to have a minimum level of car insurance. (Weird exception with New Hampshire, but that’s probably not most of you.) Every other state plus Washington, DC has laws requiring drivers to have liability coverage, which protects the other driver in the case of a crash.
- Comprehensive: covers damage from weather (fire, flooding, etc.) and theft
- Collision: covers damage caused by a crash (together with comprehensive, this is often termed “full coverage”)
- Personal Injury Protection (PIP) or medical payments: which covers the injuries of you and your passengers when you are the driver at fault in a collision
- Uninsured/underinsured motorist: protects you and your vehicle from damage caused by people who don’t have insurance or don’t have high enough coverage limits
Long story short, if an incident occurs that falls under any of the above types of coverage (and you’re paying for that coverage on your policy), then you file a claim with your insurance company to pay for those damages.
Do You Need a Car Warranty?
Most new cars will come with a manufacturer’s warranty, which you can often extend (for a price), and you can seek third-party warranties for new or used cars as well. Are they worth it?
Pros of a Car Warranty
- Peace of mind – As with a home warranty, the main benefit is simply not having to worry about unexpected costs.
- Allow for customization – You can choose from different coverage levels or negotiate with car warranty companies for a deal that works best for you.
Cons of a Car Warranty
- Don’t always cover everything – Like home warranties, most car warranties have some limitations in the types of repairs or amounts they’ll cover. And you may lose coverage if you don’t do proper maintenance.
- Usually a better deal for the warranty company than you – Consumer Reports has found that most people spend much more than they save.
- Not always transferrable – If you plan to sell your car within a few years, the buyer may not be able to take advantage of the warranty you paid for.
Pro Tips for Getting the Most Out of a Car Warranty:
For your car warranty to be worth the price, it’s important to do some initial research and follow some best practices:
- Don’t treat it as an impulse buy. If you buy a car warranty when they’re making the hard sell at a dealership, you can include it in your financing, which can be tempting. But you lose the chance to take time to research and shop around for the best available warranty.
- Research how often your car brand needs repairs. Consumer Reports found that people are happier with a warranty if they go with a brand that needs more frequent repairs. Owners of reliable brands are less likely to to use it.
- Read the fine print. Pay attention to limitations, so you’re not unpleasantly surprised when the time comes to use your warranty.
- Prioritize car company warranties over third party ones. Many third party companies offering car warranties are scammers. While some companies’ plans aren’t outright scams, you’re safer sticking with an extended warranty from the manufacturer.
Alternative: Commit the same amount to a savings account each month.
For most car warranties, there’s a high likelihood you’ll pay in more than you ever save. If it didn’t work that way, the industry wouldn’t be profitable. You can buy yourself peace of mind without having to deal with a third-party company by putting the amount you would spend on a warranty into a bank account and committing to continuing to add to it over time for whenever an unexpected repair arises.