Key Takeaways:
- Car warranties protect you from costly vehicle repairs in the event of a mechanical breakdown.
- Car insurance covers various expenses in the event of an auto accident, such as medical bills and vehicle repair costs.
- While car warranties offer optional coverage, car insurance is required by law in all states but Virginia and New Hampshire.
Car warranties and car insurance are both helpful protections that cover vehicle repair costs in various situations. However, the similarities end there. We at the Guides Auto Team will take a close look at car warranty vs. car insurance costs and coverage types to compare them. We’ll also explain whether you need these protections for your vehicle or if you can go without.
Our team has spent almost 800 hours researching auto insurance and over 500 hours learning about extended car warranties. In this time, we’ve reviewed over 95 companies in the insurance and warranty spaces combined. We’ll use this article to offer recommendations on the best car insurance and best extended car warranty providers on the market today.
What Is a Car Warranty?
A car warranty covers certain repairs and replacements to car parts damaged by defective components or workmanship flaws. Car warranties typically have term or mileage limits, meaning your protection will run out after a certain period. Additionally, most car warranties exclude damages caused by car accidents, routine maintenance needs like oil changes and the replacement of wear and tear parts like brake pads.
Factory Warranties vs. Extended Warranties
There are two main types of coverage: factory warranties and extended auto warranties. Factory warranties come with new vehicle purchases, though many manufacturers cover their certified pre-owned (CPO) vehicles with a limited factory warranty as well. Extended warranties are instead an additional coverage plan that can be purchased from either your car dealership or a third-party company.
What Is a Factory Warranty?
The most common types of limited factory warranties are bumper-to-bumper and powertrain warranties. Factory plans often provide a bumper-to-bumper warranty period of three years or 36,000 miles along with five years or 60,000 miles of powertrain coverage. However, some car manufacturers offer shorter or longer coverage terms to customers. Other types of protection that often come with a factory warranty include:
- Corrosion limited warranty
- Emissions limited warranty
- Roadside assistance
What Is an Extended Warranty?
An extended car warranty, also known as a vehicle service contract or a vehicle protection plan, is an option that will cover your vehicle beyond its initial factory warranty. You can either purchase an extended warranty from your manufacturer or choose an aftermarket option from a third-party provider. You’ll likely need to pay a deductible for your extended warranty when it comes time to file a claim, though some companies offer plans with no deductible.
See the infographic below for a detailed comparison of manufacturer extended warranties and aftermarket extended warranties:
How Much Does a Car Warranty Cost?
New car warranty coverage comes at no additional cost when you purchase a new vehicle. However, extended car warranties are an optional purchase that you’ll be charged for. While extended car warranties can be fully paid for upfront, many third-party providers also allow you to make monthly payments on your service contract.
In our research of extended warranties, we’ve found that the average cost of an extended car warranty in December 2022 was $3,026 in total. This average rate was calculated using data from our top eight providers, and costs can be broken down into the three coverage levels below:
Exclusionary contracts, which are similar to bumper-to-bumper warranties, could cost you more than other plans. However, you’ll receive coverage for additional repair and replacement parts, such as your car’s air conditioning and heating systems, as compared to a basic powertrain warranty.
Your personal cost for an extended car warranty could vary based on several key factors like your car’s make, model, mileage and age. Your chosen extended warranty provider will also play into how much you’ll ultimately get charged.
What Is Car Insurance?
Car insurance can help to pay for car damages and bodily injuries after an accident occurs. On top of that, auto insurance covers repairs in some situations if your vehicle gets damaged, stolen or destroyed due to another event such as a fire or flooding.
Car insurance isn’t an optional coverage type. All states except for Virginia and New Hampshire require a minimum-coverage auto insurance policy by law. Since coverage limits vary across the U.S., make sure that you’re up-to-date on your specific state laws.
Basic Types of Car Insurance
While car insurance is often intended to cover damage to vehicles, it can also take care of certain medical bills. See below for a breakdown of the types of insurance that are offered:
- Bodily injury liability insurance: Covers both medical bills and lost wages of the other party if you’re found at fault for an auto accident
- Property damage liability coverage: Covers damage to property and other vehicles in an accident that you’re at fault for
- Medical payments (MedPay): Pays for medical expenses of you and your passengers, no matter who’s at fault in an accident
- Personal injury protection (PIP): Required in no-fault states and covers medical expenses, lost wages and death benefits for you and your passengers
- Underinsured/uninsured motorist coverage (UIM/UM): If you’re involved in an accident with someone who is underinsured or lacks insurance coverage, this will cover expenses if they’re at fault
- Comprehensive coverage: Pays for damage to your vehicle that isn’t from a wreck, such as due to natural disasters, fallen trees, hail, theft or vandalism
- Collision coverage: Covers damage to your vehicle in an accident, regardless of whether or not you’re at fault
Most car insurance providers offer add-on coverages such as roadside assistance, rental car reimbursement, new car replacement, gap insurance and even rideshare insurance. However, these add-on coverages will vary somewhat by the company.
How Much Does Car Insurance Cost?
According to Quadrant Information Services, full-coverage auto insurance policies cost an average of $1,730 per year or $144 per month while minimum-coverage policies average out to $635 per year or $53 per month. Note that your auto insurance costs may vary based on factors such as your location, type of car, driving record, age, gender and credit history.
Your state plays a large part in how much you’ll pay for car insurance, as each one sets its own car insurance regulations, requirements and minimum coverage limits. Different states also have varying driving conditions that could have an impact on your insurance premium costs. See the graphic below for more details on the average cost of car insurance by state:
Car Warranty vs. Car Insurance: What’s the Difference?
While both car warranties and car insurance provide valuable protection to cover repair costs in various situations, they share few other similarities. Car warranties cover issues caused by a mechanical breakdown due to faulty workmanship or defective parts. Car insurance instead protects against expenses like medical bills and auto repair costs in the event of a car accident.
Some car insurance companies offer a coverage type called mechanical breakdown insurance, which is similar in nature to an extended car warranty. While it can often be cheaper than an extended warranty, this insurance policy doesn’t offer benefits such as roadside assistance or towing that are normally standard with other extended warranty providers.
Do You Need Car Insurance?
Car insurance isn’t optional for your vehicle unless you live in Virginia or New Hampshire. Coverage helps to protect people in car accidents that weren’t their fault, and it holds drivers accountable for the risk they take when they choose to drive.
The amount of car insurance coverage you need depends on your state of residence. Either way, you may choose to invest in a higher level of coverage than the state-required minimum.
Do You Need an Extended Car Warranty?
Extended car warranties are completely optional, and it’s up to you whether or not to purchase one. As with most things, there are pros and cons to purchasing an extended warranty. See the table below to learn more about advantages and downsides:
Once the factory warranty expires, you’ll be responsible for covering unexpected and costly mechanical repairs out of pocket unless you extend coverage. We encourage you to think about how long you plan to keep your car, as well as how much you’re willing to pay for car repairs.
In our 2022 extended warranty consumer survey, we found that out of 1,000 participants, more than 58% typically experience mechanical breakdowns at least once every two years. If you’re the type of driver who believes that peace of mind on the road is worth the cost, an extended warranty could be right for you.
Car Warranty vs. Car Insurance: Recommended Providers
Regardless of whether you’re considering an auto insurance policy or a warranty plan, it’s best to compare providers before making a decision. You’ll find a few of our top picks for each category below that we’d suggest reaching out to for personalized and free quotes.
Best Extended Car Warranty Providers
If your manufacturer’s warranty has expired and you’re interested in buying an extended warranty for your new or used car, we recommend shopping around and getting quotes from at least a few providers. Endurance, Carchex and CarShield are all known to offer solid vehicle protection along with reasonable prices for extended coverage.
Best Car Insurance Providers
Car insurance is required by law in most states, so you should already have a policy if you’ve got a personal vehicle. However, there’s no harm in shopping around with various companies in hopes of finding cheaper rates. We recommend starting with established car insurance providers such as State Farm, USAA and Geico.
Car Warranty vs. Car Insurance: Conclusion
Car warranties and car insurance both provide peace of mind and vehicle protection on the road, but in completely different ways. While extended car warranties are optional protection, you’re legally required to carry car insurance in most states. Whether you’re looking for an auto warranty or a car insurance policy, take time to obtain quotes from reputable insurance and car warranty companies to find the right fit for your needs.
Our Methodology
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best car insurance companies. We collected data on dozens of auto insurance providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the insurers that scored the most points topping the list.
Here are the factors our ratings take into account:
- Cost: Auto insurance rate estimates generated by Quadrant Information Services and discount opportunities were both taken into consideration.
- Coverage: Companies that offer a variety of choices for insurance coverage are more likely to meet consumer needs.
- Reputation and experience: Our research team considered market share, ratings from industry experts and years in business when giving this score.
- Availability: Auto insurance companies with greater state availability and few eligibility requirements scored highest in this category.
- Customer experience: This score is based on volume of complaints reported by the NAIC and customer satisfaction ratings reported by J.D. Power. We also considered the responsiveness, friendliness and helpfulness of each insurance company’s customer service team based on our own shopper analysis.
Our credentials:
- 800 hours researched
- 45 companies reviewed
- 8,500+ consumers surveyed
*Data accurate at time of publication.
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