Auto insurance costs have soared over the last year. According to the latest CPI report, prices rose 20.6% in February from a year ago. There are ways drivers can save some cash on their motor vehicle insurance, but they will have to make a big sacrifice to get that discount: their privacy.
In the video above, Yahoo Finance Personal Finance Editor Molly Moorhead explains the pros and cons of usage-based insurance.
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Editor's note: This article was written by Stephanie Mikulich.
Video Transcript
- Auto insurance rates, I mean, it feels like they're spiraling all over the country, up 20% year over year. We want to show you one way that you can potentially lower your payments, and it involves selecting a different type of insurance. What is this different kind of insurance and how does it work?
MOLLY MOORHEAD: So it's called usage-based insurance. And there's kind of two different types. One is pay-per-mile. And so you pay a base rate, and then you pay mile, you drive every year. And it's really only for people who drive 10,000 to 12,000 miles a year. So commuters. People who drive a lot, not a great option. But it can save money for people who just don't have to drive that much but need insurance.
The other one that's gaining popularity is pay-how-you-drive insurance. And this uses technology in your car to track your driving habits. And that's how your rates are set.
- So it's tracking how many red lights I run, things like that. OK, all right. So what kind of driving habits would these programs track, all jokes aside?
MOLLY MOORHEAD: Yeah, it gets very specific. So they can see your acceleration rate, how you brake. Are you slamming on the brakes a lot? And another key one, are you on your phone while you're driving?
- Wow.
MOLLY MOORHEAD: That's what they're watching.
- And so what are the pros and cons of usage-based, UBI, usage-based insurance programs?
MOLLY MOORHEAD: The big potential pro is money saving. And that's a big deal right now. As you said, car insurance is so high. The major insurers say that the potential savings here is 15% to 30% on your premiums. And so that's the big plus.
The con is privacy, right? You're letting them put a device in your car that is following you around and watching everything you do. And that makes a lot of people uncomfortable. So there's a trade off.
