Car insurance rates have surged in the past year, with February’s Consumer Price Index report indicating a 20.6% increase from the previous year. While drivers seek avenues to trim their motor vehicle insurance expenses, achieving discounts often entails a significant trade-off: compromising privacy.
In the video above, Molly Moorhead, Yahoo Finance Personal Finance Editor, explores the advantages and drawbacks of usage-based insurance.
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- Auto insurance rates seem to be skyrocketing nationwide, up by 20% annually. We’re here to introduce a potential method for reducing your payments, involving a different insurance approach. What exactly is this alternative insurance and how does it function?
MOLLY MOORHEAD: This is known as usage-based insurance, comprising two main types. Firstly, there’s pay-per-mile, where you pay a base rate plus a fee for each mile driven annually. It’s particularly suitable for individuals commuting around 10,000 to 12,000 miles annually. However, it may not be ideal for heavy drivers. Nonetheless, it can offer savings for those requiring less driving but still needing insurance coverage.
The second type gaining traction is pay-how-you-drive insurance, utilizing in-car technology to monitor driving habits, which subsequently influences your premium rates.
- So, it’s essentially monitoring aspects like my braking and acceleration patterns, and even whether I’m using my phone while driving. Okay, interesting. What specific driving habits do these programs track?
MOLLY MOORHEAD: Indeed, it delves into intricate details. It can analyze acceleration rates, braking behaviors, and even detect instances of phone usage while driving.
- Impressive.
MOLLY MOORHEAD: The primary advantage is potential cost savings, a significant consideration given the current high car insurance rates. Major insurers suggest potential premium reductions ranging from 15% to 30%. However, the downside is privacy concerns. By allowing monitoring devices in your vehicle, you’re essentially consenting to surveillance of your driving activities, which can be unsettling for many. Thus, there’s a delicate balance to strike.”
