Telematics Insurance: Is It Right for You?

Telematics Insurance: Is It Right for You?

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Telematics insurance, also known as usage-based insurance (UBI), is the use of monitoring technology to set or adjust auto insurance rates. It comes in two forms: mileage-based auto insurance, which sets rates based in part on how far you drive your car, and behavior-based auto insurance, which offers discounts based on how well you drive your car.

Insurance companies track your driving via in-car technology, a plug-in device or mobile app, and use the data generated to calculate your car insurance premiums.

What is telematics car insurance?

Telematics is the name for the technologies companies use to tailor car insurance rates based on your driving habits. There are two kinds of telematics auto insurance programs:

  • Pay-as-you-drive auto insurance programs base rates on the number of miles driven.
  • Behavior-based programs give discounts on your car insurance rates if you drive safely.
Both of these telematics progams are known as usage-based car insurance (UBI) or black box insurance.

The key benefit of telematics is that it allows your insurer to tailor your rates to your specific risk level. Without telematics, insurers calculate your insurance rates based on a variety of factors. Some of these factors are beyond your control, such as your age or crime rates in the area where you live. By sharing your driving data with your insurer via telematics technology, you can prove that you're a safe or low-mileage driver deserving of lower rates.

Different insurers use different kinds of telematics technology. Some insurance companies use a telematics monitoring app to track your driving, while others use a telematics device that you install in your car. Some combine these two, while others use in-car technology like OnStar to track driver behavior.

How telematics insurance works

Telematics insurance works differently depending on whether you opt for pay-per-use insurance or a behavior-based program.

How pay-per-mile programs work

Pay-per-mile programs operate on the simple principle that if you drive less, you should pay less for car insurance. Instead of paying a consistent rate every month, pay-per-mile programs charge a base rate plus a per-mile fee. These insurance programs usually require drivers to plug a telematics device or "black box" into their car that monitors how many miles they drive.

The base rate is calculated similarly to a standard auto insurance policy, with insurers taking factors like your age, your driving record and the car you drive into account. While rates vary from person to person, they usually start at about $20 per month.

The per-mile rate also varies, but is usually just a few cents.

For example: If your base rate was $20 and your per-mile rate was 4 cents, you would pay $28 if you drove 200 miles in one month and $36 if you drove 400 miles the next month.

On the other hand, if you drive more than the standard 12,000 miles per year, you should avoid pay-per-mile insurance programs. You'll likely wind up paying more than you would with a standard auto insurance policy.

How behavior-based telematics programs work

Behavior-based insurance programs use telematics to track how you drive and reward safe behavior with discounts. Instead of adding to your car insurance premium based on how much you drive, as with pay-per-mile programs, they reduce your auto insurance premium based on how well you drive.

Drivers download a telematics app and/or install a device in their motor vehicle that scores their driving habits. Drivers can use this feedback to improve their driving and build better habits.

Different insurers focus on different behaviors when using telematics to score your driving habits. Common behaviors these programs aim to discourage include:

  • Late-night driving
  • Driving during rush hour
  • Hard braking
  • Cornering
  • Phone usage
  • Speeding

To incentivize participation, some insurers offer a participation discount that applies as soon as a policyholder joins the program. This discount varies, but is usually around 5%.

At the end of a set period of time — usually anywhere from 90 days to a full six-month policy term — participants receive a discount based on how well they've driven. This performance discount replaces the original enrollment discount.

Some insurance companies allow drivers to retain their performance discount for the life of their policy; others require drivers to undergo continuous monitoring and adjust their discount at each renewal.

Insurance companies advertise different maximum discounts, ranging from 25% to 50%. Be aware, however, that user reviews of these car insurance tracking devices and apps say that getting the maximum advertised discount is difficult, if not impossible.

The majority of insurers pledge that they will not raise your rates based on the data gathered via telematics app, and will use it solely to determine your discount. However, they may raise your rates for reasons unrelated to your driving performance — such as a dip in credit score or a move to a more accident-heavy area — which could in turn limit how much you save.

On the other hand, if you're comfortable sharing your personal data with your insurer, telematics could be a great fit. These programs allow you to demonstrate to your insurer that you're a safe driver deserving of lower rates.

Is telematics insurance worth it? Pros and cons

The biggest disadvantage of usage-based insurance is that you give up a good deal of data privacy.

You can only earn reduced premiums by sharing your driving data with your insurer.

Privacy implications of telematics insurance

Most telematics car insurance programs use a GPS tracker of some kind, so your insurer will know not just how far you're driving, but where. And many app-based insurance programs allow your insurer to see where you are at all times — not just when you're driving. The amount of driver data an insurer collects varies by company and can vary based on state regulations.

For example, Allstate will only track a range of changes in speed, plus time of day, miles driven and a few other basic pieces of information. Other usage-based insurance programs will track your exact location, or your car's location if you chose a plug-in device instead of an app.

If you're squeamish about sharing location data and personal information, telematics programs are not a good fit for you. Try to reduce your premium with other car insurance discounts.

On the other hand, if you're comfortable sharing your personal data with your insurer, telematics could be a great fit. These programs allow you to demonstrate to your insurer that you're a safe driver deserving of lower rates.

Should I consider a mileage-tracking insurance program?

Pay-as-you-drive programs are a good fit for:

  • Retirees
  • Employees who work from home
  • City residents who mostly use public transit
  • Owners of a vehicle only driven occasionally
  • Anyone who drives less than 35 miles per day

However, if you drive more than 12,000 miles per year, you should avoid pay-per-mile insurance programs. You'll likely wind up paying more than you would with a standard auto insurance policy.

Should I consider a behavior-based telematics program?

Many drivers can benefit from a behavior-based telematics car insurance program, provided they drive safely and avoid accidents. We particularly recommend it for demographic groups charged above-average premiums, such as:

  • Young drivers
  • Drivers with a low credit score
  • Drivers who live in an accident-prone or high-crime area
  • Those who want to drive more safely and welcome feedback

Drivers who fall into the following categories should avoid telematics insurance:

  • Those who must drive late at night or during rush hour
  • Drivers who struggle to stay phone-free
  • Drivers who struggle to avoid habits like hard braking and cornering

Different insurers monitor and penalize different habits.

Some programs ding you for phone usage — even hands-free calls. Others do not factor in phone usage at all, but take the time of day you drive into account. Some require ongoing monitoring, while others give you a discount after just a few months of tracking your habits.

Given these differences, we recommend comparing programs to determine which one is the best fit for your habits and preferences.

Which company has the best telematics insurance?

There is no single best telematics program. Because these programs differ so widely in terms of which behaviors they track and how they calculate discounts, shoppers should reflect on their driving habits and select the program that best aligns with those habits.

That said, all shoppers should compare rates to determine which insurer offers them the best deal before choosing a telematics program. Annual premiums vary significantly among insurers, and a telematics discount will not necessarily offset that difference.

For example, Nationwide SmartRide offers drivers a bigger discount than Liberty Mutual RightTrack. However, if your annual premium from Liberty Mutual is significantly cheaper than what Nationwide charges, you're likely better off sticking with Liberty Mutual, since you're unlikely to get the maximum advertised discount anyway.

If you're considering a mileage-based program, shop around and see which insurer offers you the most affordable base rate. Insurers adjust the base rate according to your demographic information and driving history, just as they do with standard auto insurance. Once you know your base rate, you can use the per-mile rate to calculate roughly how much you would pay each month.

The only behavior-based telematics programs we do not recommend are Geico DriveEasy and Progressive Snapshot. If you drive poorly while being monitored by these insurers, your rates could increase. Other programs use your driving data solely to calculate a discount.

Best pay-as-you-drive insurance

Check out the table below to compare the availability of mileage-based telematics programs:

MetromileAZ, CA, IL, NJ, OR, PA, VA, WA

Allstate MiIewise
Nationwide SmartMilesAZ, CO, CT, DC, IA, ID, IL, IN, MD, ME, NH, NM, NV, OH, OR, PA, TX, UT, VA, VT, WA, WY
Mile AutoGA, IL, OR

Frequently Asked Questions

Does my car have telematics?

Some cars have telematics technology as a standard part of the car itself. Manufacturers that include telematics technology as part of the car include General Motors, BMW, Mercedes-Benz, Hyundai and Toyota.

However, not all telematics technology is compatible with usage-based insurance programs. You may still need to install a device or download an app to snag insurance savings.

What are telematics devices?

Telematics devices monitor your car's movements. While most are plug-in devices that you install in the on-board diagnostics (OBD) port of your car, others are beacons that you install on your windshield or another stable area of your vehicle. Different programs use different devices.

What is telematics data?

Telematics data is the information collected by a telematics system about your car's movements. The data collected varies, but usually includes time of day, sudden changes in speed, phone usage, distance driven and location. We recommend reading the user agreement and privacy statements of whatever telematics program you use so you know how your insurer uses the data it collects about you.

When did telematics start?

Telematics programs emerged more than 10 years ago. General Motors and Progressive first used GPS technology to offer lower rates to low-mileage drivers. Since then, they have exploded in popularity, with most major insurers offering a telematics discount of some kind.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.