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Ask The Expert: Is My Son Crazy For Trying This New Auto Insurance?

Question: My son is now on his own, which means he’s paying for his own car insurance for the first time. He’s a good boy, and he likes to save money. So he was all excited to tell me about something called State Farm In-Drive, which he says saves him hundreds of dollars on his insurance. So what’s the catch? He installed a device under his dashboard that tracks his movements!

He says he doesn’t care as long as it saves him money. I’m worried about corporations using his personal information against him someday. What do you think about this new-fangled device, Howard?

— Alexis in new Mexico

Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fastFirst of all, Alexis, this service isn’t exactly new. It’s been around for several years now, but it’s only starting to seep into the public consciousness.

It goes by several names, but usage-based insurance is as accurate as any. The basic conceit is this: An increasing number of auto insurance companies will offer deep discounts if you drive safely — and if you’re willing to prove it.

As Debt.com reported two years ago this month, “The discounts usually fall between 15 and 30 percent, but can be as extreme as 54 percent if you barely drive at all.”

To earn those discounts, the insurance companies use the latest technology: “The company will send you a tracking device to plug into your car’s diagnostic port. The location of these ports vary, but they’re designed to be within reach of the driver’s seat.”

These devices monitor not only speeding and how far you drive — which are two indicators of higher rates — but also how often you slam the brakes and whether you drive late at night.

Alexis, you’re concerned that your son’s information may be used against him, but as Debt.com reported, “Parents might also like this for their kids’ first policy, since some devices offer alerts for speeding or hard braking that can help teach them defensive driving.”

Still, most Americans agree with your outlook on this kind of high-tech insurance. Earlier this year, Debt.com reported on a poll  showing half of Americans would never surrender their privacy for a discount. However, just recently, a new study shows millennials are enthusiastic about these programs. As many as 88 percent would consider signing up if the discounts were just right.

Obviously, Alexis, your son is from a generation that views privacy differently than our generation does. Since Debt.com reporters have been covering this issue, I’ve found nothing to indicate those insurance companies are misleading customers, or not delivering on their promises. While usage-based insurance is a viable savings tool, I can’t recommend for or against it. It simply comes down to a personal preference regarding personal information.

That said, Alexis, it sounds like your son is a financially responsible young man. For that, I think we’re both thankful!

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Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a  CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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