Car Warranty vs Car Insurance: What’s the Difference?

Alevin Chan

Alevin Chan

Last updated 21 November, 2022

Car insurance and car warranties can both protect you from expensive car repair bills, but they work in different ways. Learn about how car warranties and car insurance can complement each other.

Car warranties and car insurance are both designed to help drivers avoid hefty repair bills, whether because of accidents or due to normal wear-and-tear.

While car insurance is compulsory, car warranties are included with each new car, giving buyers some interim protection. You can purchase an extended warranty for longer coverage or if you’re getting a second-hand car that no longer has a valid warranty.  

But is it necessary for every driver to get an extended car warranty? And how does it work with your car insurance plan?

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Understanding car warranty 

What is a car warranty and how does it work?

A car warranty is a service agreement with a dealer or workshop that covers the cost of repairs or servicing for your vehicle.

Car warranties last for a specified number of months or years. When you purchase a car warranty, repairs, servicing or maintenance on your car can be done at no additional charge – provided they fall within the suite of services and parts covered by the warranty.

Note that car warranties are aimed at repairs arising from major system failure or vehicular breakdown, arising from wear-and-tear or neglect. Some car warranty packages also include routine maintenance sessions, which can be useful in helping to prevent breakdowns in the first place. 

Note that a car warranty does not cover repairs or parts replacement arising from an accident, fire or theft (that is what your car insurance policy is for). 

Pros and cons of car warranties

Pros

Cons

May be cheaper than the cost of a major breakdown

You may never use it if your car does not suffer a major failure

Transferable, so may improve resale value

Does not cover all parts and/or services, so you may still have out-of-pocket costs

Can hedge against future costly repairs, especially for under cars

Restricted only to the workshops offered under the warranty

As summarised above, car warranties can potentially save you from a costly repair bill somewhere down the line; this may be especially pertinent when buying a second-hand car. Also, car warranties are transferable, which means you can offer the remaining tenure of the warranty as a perk when selling your car, possibly attracting a higher price and/or a larger pool of buyers. 

On the flip side, the main argument against purchasing a car warranty is that you may never get to use it if your car never suffers a serious breakdown. 

Considering that car warranties can cost upwards of a few thousand dollars – depending on your car make and model, as well as the duration of the warranty – some drivers may not find this to be a justifiable expense.

Look out for packages that bundle in routine maintenance and servicing as well (such as this seven-year deal that starts from S$2,338); with these, you know you’ll at least be making some use of your warranty.


At-a-glance: Car warranty vs car insurance

Car warranty

Car insurance

Covers wear-and-tear, servicing and repairs

Covers against damage or loss arising from accidents, fire or theft

Optional

Compulsory 

May help you save on out-of-pocket expenses

Compensates you for insured risks

Transferrable to new owner

Not transferable, new owners have to purchase their own car insurance plan


How do car warranties and car insurance work together?

As shown in the table above, car warranties and car insurance cover your vehicle for different scenarios. 

Car insurance covers you against damage or loss of your vehicle due to accident, fire or theft. It also provides coverage against claims from third-parties, such as accident victims or those whose property was damaged by your vehicle. Other benefits such as hospitalisation cover and personal accident cover may also be included, depending on the plan you choose. 

However, getting into an accident, or falling victim to theft or vandalism, may not be the only events that would cause your car to require repairs. Your vehicle may suffer a breakdown or mechanical failure due to wear-and-tear from normal use, rendering it inoperable.

That’s where car warranties come in. These packages are designed to meet the needs of drivers whose cars encounter major breakdowns or failures or serious issues that require extensive repairs. 

The costs of such work can be unexpectedly high, and if you do not have the money to pay for the repairs, you will be stuck between a rock and a hard place – you can’t use your car, yet have to continue paying for your car mortgage!

But if you happen to have a car warranty, you can offset the costs of such repairs, potentially saving yourself from a large, unexpected expense. 


Should you purchase a car warranty?

Just like your car insurance plan, car warranties are designed to hedge against risk. Whether you should get a car warranty on top of your compulsory car insurance pretty much depends on how comfortable you are with the risks involved in owning a car. 

While cars can and do break down, regular maintenance, careful use, adhering to manufacturer guidelines and not making illegal modifications that change the way your car works will all help in reducing the chances of a serious mechanical fault.

Also, don’t forget that all new cars come with a manufacturer’s warranty (usually around three years), which may already be sufficient for your needs, especially if you have a habit of changing cars rather quickly. 

And, if you have the financial means to deal with a major repair or breakdown, then getting a car warranty becomes less urgent. Provided you’re not too indebted, there is always the option of taking a personal loan to pay for the repairs. 

One final point: It is also important to note that car warranties only cover selected parts and services, so you may still have to bear some out-of-pocket expenses for repairs and replacements, even if you purchase a car warranty. 

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An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.