Telematics Insurance: Is It Right for You?
Telematics insurance uses monitoring technology to set or adjust auto insurance rates. It's also called usage-based insurance (UBI). It comes in two forms. Mileage based insurance sets rates based in part on how much you drive. Behavior based insurance offers discounts based on safe driving.
Insurance companies track your driving with a plug-in device or mobile app. The data generated helps set your car insurance rate.
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.
The key benefit of telematics is that it allows your insurance company to tailor your rates to your specific risk level. Without telematics, companies calculate your insurance rates based on a variety of factors. Some of these factors are beyond your control, like your age or crime rates in the area where you live. By using telematics, you can prove that you're a safe or low-mileage driver who deserves lower rates.
Different companies use different kinds of telematics technology. Some insurance companies use a telematics monitoring app to track your driving. 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 idea 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 into their car that monitors how many miles they drive.
The base rate is set similarly to a standard auto insurance policy. Insurance companies consider your age, driving record and the car you drive. 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.
If you drive over 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.
Drivers download a telematics app and/or install a device in their car that scores their driving habits. Drivers can use this feedback to improve their driving and build better habits.
Different insurance companies 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 boost participation, some companies offer a discount that applies as soon as you join the program. This discount varies, but is usually around 5%.
At the end of a set period of time, you'll get a discount based on how well you drove. This period can last anywhere from 90 days to a full six-month policy term. This performance discount replaces the original sign up discount.
Some insurance companies allow drivers to keep 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%. But user reviews of these programs say getting the maximum discount is difficult, if not impossible.
Most companies won't raise your rates if you drive poorly. But they may raise your rates for other reasons, like a dip in your credit score or moving to an area with more accidents.
On the other hand, if you're comfortable sharing your personal data with your insurance company, telematics could be a great fit. These programs allow you to demonstrate r 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 get a discount by sharing your driving data with your insurance company, either through an app on your phone or a tracking device in your car.
Privacy implications of telematics insurance
Most telematics programs use a GPS tracking device. That means your insurance company knows how far you drive and where. And many apps always let the company see where you are — not just when you're driving. The amount of driver data an insurance company collects varies and can vary based on state regulations.
For example, Allstate only tracks speed changes, time of day, miles driven and some other basic pieces of info. Others track your exact location.
If you're concerned about sharing location data and personal info, telematics programs are not a good fit for you. Try to reduce your rates with other car insurance discounts.
On the other hand, if you're comfortable sharing your personal data with your insurance company, telematics could be a great fit. These programs allow you to demonstrate 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, if they drive safely and avoid accidents. We particularly recommend it for demographic groups charged above average rates, such as:
Drivers who fall into the following categories should avoid telematics insurance:
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 insurance companies 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. They differ based on 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 insurance company offers them the best deal before choosing a telematics program. Annual rates vary a lot between companies, 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 Liberty Mutual quote is much cheaper than Nationwide's, it's best to stick with Liberty Mutual. That's because you're unlikely to get the maximum discount.
If you're considering a mileage based program, shop around and see which insurance company offers you the most affordable base rate. Companies adjust the base rate according to your demographic info 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 companies, 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:
Company | Availability |
|---|---|
| Metromile | AZ, CA, IL, NJ, OR, PA, VA, WA |
Allstate MiIewise | AZ, DE, ID, IL, IN, MD, NJ, OH, OR, TX, VA, WA, WV |
| Nationwide SmartMiles | AZ, CO, CT, DC, IA, ID, IL, IN, MD, ME, NH, NM, NV, OH, OR, PA, TX, UT, VA, VT, WA, WY |
| Mile Auto | GA, 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. 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 info 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. Read the user agreement and privacy statements of whatever telematics program you use so you know how the company 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 companies offering a telematics discount of some kind.