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Difference Between Car Insurance and Vehicle Service Agreements

CarShield Team

Posted in:
Research & Savings
Table of Contents

Why Do I Need Vehicle Coverage?

What Is Car Insurance?

What Is a Vehicle Service Contract?

Car Insurance vs. Vehicle Service Contracts

Should You Have a Vehicle Service Contract if You Already Have Car Insurance?

Differences in Repairs and Coverage

Why Do I Need Vehicle Coverage?

Your vehicle will break down at some point. We’re sorry to be the bearer of that news, but it’s unfortunately true. For proof, look to car dealerships: even though their primary purpose is to sell cars, America’s dealerships alone made $68.89 billion in service and labor sales in 2022.

We reiterate: at some point, your car will stop working properly. When that happens, the primary way to rectify that is to pay for the repair. In that scenario, it’s car insurance versus a vehicle service contract for how you’ll cover that cost (unless you plan to pay out of pocket). Either way, you’ll need some form of protection plan in place if you don’t want to gouge your wallet every single time an expensive repair happens.

When it comes to a service that helps you recover from an automobile repair, the terms “insurance” and “extended vehicle protection” are likely to show up somewhere in your searches. However, unless you happen to know the difference between these two options (hey, you’re ahead of the game) or have learned the difference between these policy categories the hard way (sorry, friend), you’ll have to do a bit of research to find out which one you actually need.

We’d like to give you a head start. Here, we’ve got a quick and easy breakdown of what to expect from each type of vehicle coverage: vehicle insurance and extended vehicle protection.

What Is Car Insurance?

We’ll start with car insurance, since it’s more likely that you will be compelled to have it. Most states in the United States require drivers to insure their vehicles before they even start driving them. Insurance policies can be used alongside manufacturer warranties, extended warranties, or vehicle service contracts to make sure that more of your vehicle’s needs are covered.

Speaking of coverage, here are some of the things you may be able to expect your automotive insurance company to cover:

  • Fires
  • Floods
  • Theft
  • Vandalism
  • Accidents or collisions
  • Bottom line: Vehicle insurance will help you out with unanticipated repairs NOT related to mechanical failure. Most plans do have stipulations, though, about what conditions your necessary repair must meet in order to be covered. Remember to fully read your policy paperwork so you know if there are any exceptions to what your plan will cover.

    What Is a Vehicle Service Contract?

    While car insurance covers vehicle damage resulting from an accident, a vehicle service contract will apply to repairs that resulted from mechanical failure. Just to be clear: a mechanical breakdown is when something stops working on your vehicle without being caused by a specific accident or disaster.

    Since nothing lasts forever (least of all a vehicle used every day to carry us miles and miles over a variety of terrains), your vehicle is extremely likely to experience a mechanical failure. That said, you must have this protection plan in place before your car breaks down (otherwise your repair will not be covered).

    Vehicle service contracts may cover the repair of the following components after a breakdown:

  • Engine
  • Transmission
  • Drive axles
  • Air conditioning
  • Power windows
  • Steering system
  • Brake system
  • Water pump
  • Suspension
  • Radiator
  • This is not an exhaustive list of what a vehicle service contract might include, of course, because not all plans cover the same components. CarShield offers a variety of plans and protection options that cover what you need. Call today to speak to one of our helpful customer care representatives who can outline how plans through CarShield can help you get back on the road after a mechanical breakdown.

    Bottom Line: A vehicle service contract can be used alongside an insurance policy to make sure that your car runs regardless of what made it break down. If you have a manufacturer or an extended car warranty, however, a vehicle service contract may not be as effective. However, if you are deciding between an extended warranty and a plan through CarShield, then we’ve got you covered. Call the number at the top of this page today to get your free quote!

    Car Insurance vs. Vehicle Service Contracts

    As we’ve previously mentioned, car insurance companies will cover accidental damage and a vehicle service contract will cover issues related to mechanical failure. All services for each of these coverage plans will operate under that rule of thumb.

    In other words, let’s say your car is stuck on the side of the road and is completely undriveable. If your car has been rendered inoperable by an accident, then you must call insurance to tow your vehicle. However, if your vehicle hasn’t been in an accident, your insurance cannot help you. In the event that your vehicle stops working for another reason, your vehicle service contract will be your point of contact.

    Aside from what each type of policy covers, there are some other key differences between car insurance and a vehicle service contract. Below, we’ve got a side-by-side comparison of answers to common questions regarding these forms of vehicle protection coverage.

    Car Insurance   Vehicle Service Contract
    Must have it before driving car When do I purchase it? Whenever you would like to begin coverage, but it is only effective if you purchase coverage BEFORE a breakdown
    Car insurance company Who do I buy it from? Providers such as CarShield, dealership, or other lender
    At intervals set by insurance company (annually, bi-annully, monthly) When/how do I pay for it? Depends on your selected plan (month-to-month or upfront)
    Cost of repairs resulting from accident or covered incident What does the plan cover? Parts, labor, and diagnostic tests needed to repair your vehicle after mechanical failure. CarShield plans also provide trip interruption assistance (e.g. 24-hour roadside assistance, rental car options, and towing)
    Yes; the average auto insurance deductible ranges between $100-$1,000 Do I pay a deductible? Depends on your chosen policy; vehicle service contract deductibles average between $0-$200

    Should You Have a Vehicle Service Contract if You Already Have Car Insurance?

    You should have a vehicle service contract if you want something to cover the mechanical failures not typically covered by insurance plans. When you support your auto insurance with a vehicle service contract, you can be protected from bills for the automotive issues you both expect and don’t expect.

    Differences in Repairs and Coverage

    When was the last time you got into an accident? Chances are, as a responsible driver, you don’t get into accidents that often. In fact, there’s a chance you may never crash your car for as long as you own it. Mechanical failure, however, happens no matter how safely you drive. Therefore, since your car malfunction is more likely to be caused by mechanical failure instead of an accident, you are more likely to use a vehicle service contract than an insurance policy.

    Potential Vehicle Problem Policy Most Likely to Cover This Problem*
    I crushed my front end in an accident. Insurance
    Due to an intense storm, a tree branch fell on (and significantly damaged) my car, and local flooding drenched the engine. Insurance
    My car’s air conditioning stopped working for some reason. Vehicle Service Contract
    My vehicle started pulling/wandering to one side while I drive, so the steering needs replacing. Vehicle Service Contract
    One of my car’s power window motors suddenly stopped working, so the window doesn’t go down anymore. Vehicle Service Contract
    Another car scraped my parked car in the parking lot. Insurance
    *NOTE: This chart does not in any way guarantee that any of the listed items will be covered by your insurance plan or vehicle service contract. It is intended solely as an educational device to help you gain a clearer understanding of the purpose of each coverage category.
      Published By  
    Sarah Solomon
    Senior Editor & Copywriter at CarShield

    Sarah is the senior editor and copywriter at CarShield. Her relationship with cars began when she started racing in the local Soap Box Derby as a kid. Now, Sarah gets to drive more complex vehicles—which is great even though she doesn't earn trophies for driving anymore. She writes out of St. Louis, MO.

    Michael has CarShield for peace of mind with his 2014 Chevy Impala to protect against new design issues.
    Michael has CarShield for peace of mind with his 2014 Chevy Impala to protect against new design issues.

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