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Auto Insurance vs. Vehicle Service Contract: Do You Need Both?


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 | July 13, 2017
Do you need both? Learn about auto insurance vs. vehicle service contracts

Driving can get expensive quickly. Car payments, insurance, gas, maintenance, and repairs all add up. An accident or breakdown could be enough to push your finances over the edge, depending on the scope of damage.

Both auto insurance and vehicle service contracts can help cover the costs of repairs to your vehicle. If you had a big repair come up - would you be able to afford it? These types of protection could handle those costs for you. But do you need both? Will one make the other redundant?

We take a look!

Auto Insurance

Your state likely mandates that you carry at least some auto insurance coverage. This is primarily due to the high costs associated with car accidents. For both those at-fault and those who are victims of a car accident, auto insurance helps ensure that repairs, replacements and medical treatments are paid for, should they be required.

Mandated auto insurance coverage usually includes Property Damage Liability and Bodily Injury Liability. Both help to protect your liability for injuries or damage you could cause in an accident. Depending on the severity of an accident, the damage and injuries could end up costing tens of thousands of dollars or more. Auto insurance helps protect your assets if you were to cause expensive damages.

But what about damages that you aren’t responsible for? There are many other auto insurance coverages to consider that cover more than just damages you’ve caused. These coverages, like comprehensive or collision, help pay for repairs to your vehicle from certain events, like storms, crashes or theft. What specifically is covered varies from policy to policy, so be sure to check with your insurance agent for the details.

These coverages can be a huge financial help if something happened to your car, like a falling tree branch or fender bender, and it needed to be fixed. However, sometimes repairs can arise that aren’t caused by anything dramatic. What do you do then?

Vehicle Service Contract (VSC)

With any car, mechanical issues can arise and those types of repairs often aren’t covered by your auto insurance. Damages that fall outside the scope of the covered events that are listed in your policy are not covered. For instance, a busted rear view camera or squeaky brakes would probably not be covered by your auto insurance, since it is up to you as the policyholder to maintain your car. Same goes for dysfunctional A/C, which nobody wants to drive around with this time of year!

A vehicle service contract will cover many mechanical and smaller repairs that your auto insurance will not. Many VSCs include repairs like power steering or A/C, but it is best to read through your contract to be sure of what exactly is covered. Policies can exclude certain repairs, make sure you know what you are paying for!

Vehicle service contracts are rarely required. You’ll want to make sure that your vehicle does not have a warranty that would compete with a vehicle service contract. If your vehicle is under warranty, a VSC could be redundant and not even kick in to cover repairs until the warranty has expired.

Like auto insurance, your claims are subject to a deductible with a VSC. Unlike auto insurance, VSCs typically require a deductible per claim. When shopping for a VSC, take that deductible amount into consideration - it could add up over time!

Both a vehicle service contract and auto insurance policy require you to make efforts to maintain your car. For both types of coverage, claims will not be paid out if it is clear you have been neglecting maintenance for your vehicle.

Unlike auto insurance, if you have a claim to file with your VSC, you don’t have to get it repaired or go to a specific repair shop. Most vehicle service contracts allow you to use whatever mechanic you like to make your repairs! Double check your policy and with the repair shop before dropping off your car, but typically you can go wherever you choose.

Bottom Line

While both auto insurance and vehicle service contracts pay out claims, the coverage these two types of financial protection offer differ greatly. A VSC can complement an auto insurance policy by providing coverage beyond the scope of auto insurance.

There’s no debate over whether you should have auto insurance - you pretty much have to have it. A vehicle service contract can make sense if you’d have trouble paying for smaller repairs on your vehicle. Do your research to see if a VSC could help you maintain your vehicle. If you would have trouble paying for unexpected repairs, a VSC could be a good investment.