Why You Should Let Your Car Insurance Company Ride Shotgun

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Car keys on top of insurance form

Tired of paying too much for your car insurance? If so, you're not alone.

According to J.D. Power, car owners got hit with average increases of 35 percent -- $153 -- on their car insurance premiums last year. And that was up from an increase of $113 in 2012.

As rates reach for the sky, more car owners are reaching out for options to control their costs. And according to consumer financial website NerdWallet, one option you should look hard at this year is usage-based, or "pay-as-you-go" car insurance.

The 411 on Usage-Based Insurance

Usage-based insurance is a relatively recent innovation. The National Association of Insurance Commissioners describes it as a way to align the premiums that drivers pay with the amount and manner they drive, "making premium pricing more individualized and precise."

The basic idea is that the less you drive, the less chance your car will be damaged while driving -- and so the less you should pay to insure against the risk of such damage. Similarly, the better you drive -- e.g., by driving "gently," obeying the speed limit, and neither accelerating nor braking too precipitously -- the less you should be charged.

The question is how to prove to an insurance company that you drive little enough, and well enough, to deserve a discount. And the answer to this question is telematics.

Big Insurer is Watching You

Telematics refers to new advances in technology that permit an insurer to monitor how a driver drives. It basically boils down to you, the driver, permitting your insurer to install a GPS monitoring device in your car that records how the vehicle is driven over a period of time.

GPS technology has the ability to track both how far a car travels over time and how fast the it's being driven. By comparing these two data points, GPS telematics can also tell how quickly a driver accelerates and brakes.

All of this can give an insurer a good picture of how aggressively or carefully the car is being driven, allowing the insurer to better calibrate how "risky" it is to insure the driver.

What's in It for You?

NAIC thinks that within the next five years, enough insurers will offer telematics to have 20 percent of cars on American highways covered under usage-based insurance plans. But why would you want to participate?

To be blunt, if you're a bad driver with a lead foot and a need for speed, you probably won't want to have anything to do with telematics. But for good drivers, it could be a great way to reduce the cost of car insurance.

FC Business Intelligence, which runs an informational website on telematics, estimates that good drivers buying insurance from Progressive (PGR), for example, can save as much as 30 percent by installing the company's Snapshot telematics device in their cars, and providing data to Progressive on the number of miles they drive, how often they drive late at night, and similar information. Progressive provides the Snapshot device free to policyholders.

Drivers insured by State Farm could save even more. The Telematics Update website suggests that discounts based on the driver (age, occupation and place of residence) and data from the company's Drive Safe & Save telematics program can add up to as much as 50 percent off base insurance rates.

Mind the Fine Print

Not all usage-based insurance programs are created equal, so pay attention to the details before signing up.

State Farm, for example, offers its UBI program in partnership with General Motors' (GM) OnStar service, and with Ford's (F) Sync. But if you don't subscribe to either, you'll need to subscribe to a third service, called "In-Drive" -- and pay a $7 monthly fee for use of its telematics device. The first year of the service is free -- but after that first year, fees could eat into any savings on your insurance premium.

That is, assuming you drive gently enough to receive any savings at all.

Motley Fool contributing writer Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Progressive. The Motley Fool owns shares of Ford.

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59 Comments

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Thomas Rockford

We're striving mightily to keep the government our of our lives...Why would we let a private entity in? Just to save a few $$$? I haven't had a citation or at fault accident in 40 years, but I don't want a Big Brother of any stripe riding with me. The insurance companies need to go after the people who are racking up citations and wrecks.

The thing is... you don't even need to pay a lot for auto insurance. Don't use Progressive, GEICO, or any of the big guys. They all work together to rip consumers off and keep prices up. I pay $35/month full coverage from Insurance Panda without any spy device and I couldn't be happier.

How Socialistic are we going to allow this country to get? "1984" is coming true.

February 18 2014 at 12:37 PM Report abuse rate up rate down Reply
Freddy De Joint

I hate when companies and people who work for these companies claim to just trying to HELP YOU OUT !!!!!!, when in fact the cables companies, phones companies, insurance companies, gas companies, light companies and even our own GOVERNMENT ARE JUST SCREWING US UP OUR ASS DEEPER AND DEEPER EVERYDAY !!!!!!!!!!!!!!!

February 17 2014 at 11:59 PM Report abuse rate up rate down Reply
1 reply to Freddy De Joint's comment
tony

Thou be right there freddythefreeloader.

February 18 2014 at 1:13 AM Report abuse rate up rate down Reply
JJ

So how much did the insurance companies pay for this article to be written? Stay out of my car! I'll pay my monthly premiums and let you know when an incident has happened. Until then, you get NOTHING from me. Do not give into this tactic for insurance companies to eventually raise our premiums by not driving the way they want (which will never be good enough)

February 17 2014 at 10:26 PM Report abuse rate up rate down Reply
bcintennessee

I dont agree with insurance co's having any thing other than past claim records to base premiums on. I have almost perfect credit rating but i have seen some people who pay far more than they should all because they have a lesser credit rating this too is not acceptable. If anyone disagrees they have never had to collect a claim from insurance companies, 90% of the time it requires a lawyer. I do believe they should be able to use accident reports to the fullest but that's all.

February 17 2014 at 10:16 PM Report abuse rate up rate down Reply
mrknobs

I was at a FHWA meeting where a decision was taken to tax vehicles based on the time of use (rush hour or not), the roadway used, and other factors. In other words they would turn every road into a toll road and your vehicle would keep track of location, time, speed, etc. to be downloaded when refueling. The reason for this is gas tax has not gone up in more than a decade, trucks can't be charged proportional to the damage they cause, and hybrid vehicles pay little fuel tax but cause congestion on the highways.

February 17 2014 at 6:35 PM Report abuse rate up rate down Reply
1 reply to mrknobs's comment
betty_brock

Hooray for my hybrid!

February 17 2014 at 9:02 PM Report abuse +1 rate up rate down Reply
Big John

Insurance companies and all types of insurance are totally out of control in this country. They have all the right people in their pockets and charge whatever they want with no controls put on them. States make laws saying you must have auto insurance and then charge you extra for uninsured and under insured drivers? The whole insurance game is nothing more than GREED and the states and federal lawmakers must act to prevent this.

February 17 2014 at 6:21 PM Report abuse +2 rate up rate down Reply
2 replies to Big John's comment
betty_brock

Then there is the fraud. That is the real problem.

February 17 2014 at 10:02 PM Report abuse rate up rate down Reply
1 reply to betty_brock's comment
tony

Thou has that right there betty. True north insurance here in cedar rapids iowa committed fraud on me 5 years ago. Paid them for 25 years before 2005 and then the flood hit, they said to thee, thanks for your 25 years of paying but fukkk off, we aint doin anything for you sukker. Wow, and here i thought i had insurance, Nope, sure didnt, just paid 25 years for NOTHING, thanks TRUE NORTH OF CEDAR RAPIDS IOWA, for NOTHING.

February 18 2014 at 1:25 AM Report abuse rate up rate down
darlene

state and federal government are not going to control what insurance companies charge, because they are in the insurance companies pockets and the insurance companies are filling theirs, why do you think laws keep being enacted to give the insurance companies more and more excuses to raise premiums, they don't benefit honest drivers, they pay for the people who cannot/willnot afford auto insurance. it is a moot point if you have to decide whether to drive legally or feed your kids.

February 17 2014 at 10:28 PM Report abuse rate up rate down Reply
hsenpfeffer

We need to curb the excessive commissions paid to insurance salestrash and the grotesque gouging of the insurance companies who are guaranteed business by law.

February 17 2014 at 5:23 PM Report abuse +3 rate up rate down Reply
glassguy2

bull crap had a friend try snapshot ,drove at a different time that what they had him down for and they cancelled him ,throw it out the window

February 17 2014 at 3:25 PM Report abuse rate up rate down Reply
Tom

Comments, such as those by "JIM": "Having the telematics link doesn't compromise anyone's freedom.", are equal to those who claim that having red light cameras, speed cameras, and surveillance cameras are for the public good and safety. The thought process being that "...if you're not doing anything wrong, then there should not be a problem with one's acceptance of them." These thoughts all miss the point entirely, that being the interpretation of the results of the recording and the person, or persons, giving the evaluations of the recording(s). In other words, it's your word against theirs and guess who's word carries more weight. It also logs all of your actions for future reference. Don't say it doesn't, because it certainly does...just think NSA. With the collection of all of that data, the Government, YOUR Government will be asking for it in the name of "Public benefit" analysis. Again, it then becomes another's interpretation of whether a sequence of various actions on your part, over time, is questionable enough to be actionable. There exists enough data through accident and violation reporting to feed the insurance company's actuarials with a reasonable level of confidence whether you are are a high or low risk driver. Don't buy into the loss of your privacy for a "few dollars more..."

February 17 2014 at 3:22 PM Report abuse -1 rate up rate down Reply
ggalonso

Everyone thinks they are a good driver. I would never let them track me like that. Even if it did result in a lower rate, the loss of privacy and the slippery slope that this could bring on. What if, I accelerate to avoid an accident, do I get a demerit? I don't feel comfortable. When my insurance company decided to double my insurance because my husband was run over by a car while walking on the sidewalk, I looked into getting a new policy, frankly they all charged exorbitant rates, except for USAA. If your parents or you or your spouse are ex or current military, you really need to check them out.

February 17 2014 at 11:58 AM Report abuse +1 rate up rate down Reply