Do the Pros of Telematics Discounts Outweigh the Cons?

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Telematics discounts: driver using a tablet

Over the past decade, telematics discounts have exploded in popularity, rewarding millions of drivers for practicing safe driving habits. According to the National Association of Insurance Commissioners (NAIC), these programs reduce crash risk by around 50%, which also helps insurers save on claim payouts.

If you do not drive much with a clean driving record, it’s a safe bet you qualify. Keep reading to learn about telematics discounts, how telematics programs work, and car insurance companies that offer them.

If your current auto insurance company does not offer a telematics program, let provide plenty of alternatives:

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Key takeaways

  • A telematics discount is a way to save on car insurance by allowing your insurer to track you and reward you for safe driving habits.
  • Although you could save up to 40 percent, some companies, like GEICO, Farmers, and Progressive, will increase rates for risky driving behaviors.
  • Telematics programs track a mix of mileage, location, speed, fast accelerations, hard brakes, time of day driving, and distracted driving.
  • Participating in a telematics program requires you to give up some privacy, accept negative dings for things outside your control, and can create information inaccuracies.

What is a Telematics Discount?

A telematics discount is savings for participating in a usage-based program that tracks driving habits. Most auto insurers offer an initial discount for signing up and completing the program, usually between five and 10 percent. 

Once the program is complete, you’ll get an additional discount based on your driving behavior if that vehicle remains on the insurance policy. Discount savings vary widely, but you can save up to 40 percent on your insurance rates. 

Some insurance carriers have a continuous program, which means you’ll continue to provide driving data, and your rate can fluctuate with each renewal. When you switch carriers or stop participating, you lose the telematics discount and savings.

Although most carriers only use telematics technology as a savings program, some will increase your rate if you demonstrate risky driving maneuvers. GEICO’s DriveEasy, Progressive’s Snapshot, and Farmers’ Signal are examples of programs that can increase rates. Each program varies in the data it tracks and how it calculates your discount. 

Types of Telematics Programs

There are two main types of telematics programs: safe driving programs and pay-per-mile car insurance. Companies can use several options to track data, such as a plug-in device, smartphone app, Bluetooth beacon, or even through the car’s onboard system, like OnStar.

Safe Driving Programs

As the name suggests, safe driving programs track your driving habits and adjust your rates accordingly. Companies record a mixture of:

  • How fast you’re driving
  • How much over the speed limit you’re going
  • Quick accelerations
  • Hard braking
  • Time of day you’re driving
  • If you’re using a phone while driving
  • Fast cornering 
  • How many miles you drive per trip
  • If an airbag deploys
  • Highway driving vs. driving on city streets

Pay-Per-Mile Car Insurance

The likelihood of accidents increases the more you’re on the road. According to the Federal Highway Administration, drivers log over 13,400 miles annually. If you drive less than the average, pay-per-mile car insurance might be a way to save on car insurance. The fewer miles you drive, the more you’ll save.

Companies calculate rates using a daily base rate and a per-mile rate. The company tracks each trip in real-time through its mobile app and determines how many miles you drive in a month. Then, multiply it by the per-mile rate and add it to the base rate. Your premium will fluctuate monthly based on your mileage from the prior month.

How Do Telematics Programs Work?

Enrolling and getting started with a telematics program is very easy. When purchasing or renewing a policy, eligible policyholders may enroll in the program.

Once enrolled, your auto insurance will provide instructions on setting up a telematics device, including downloading a tracking app and calibrating and mounting a device in your vehicle (if provided by the insurance company).

Once your telematics device is in place, your insurance company can track your location, driving speed, frequency of hard braking, and even the time of day you are driving. Depending on the insurance company, all of this activity is tracked anywhere from 30 days to six months before a personalized rate or discount is offered to you. You may even receive cash back.

Driving data from telematics devices can also be accessed by policyholders, allowing them to correct bad driving habits.

There is no cost for participating in telematic insurance programs.

Is a Telematics Program Right For You?

Truck driver looking at a GPS mobile app

If you’re interested in a telematics program to save money on car insurance, you might wonder if it’s right. Consider these pros and cons to determine if a telematics car insurance discount is the best choice.

What Are the Advantages of Telematics Discounts?

Here are the benefits of this type of discount:

  • Potential for significant savings: If you’re a safe driver or don’t drive much, you could save big on car insurance. Discounts can top 40 percent or more, especially if you participate in usage-based and mileage programs. 
  • Most carriers won’t raise rates: With most companies, you get the initial discount just for participating, even if you don’t save further when the program ends. But beware of companies that charge higher rates for risky driving, like Farmers, GEICO, and Progressive.
  • Can help improve driving skills: Using telematics systems makes you more aware of your driving behaviors to maximize your savings. Analyzing your trip history may help you improve your driving skills and lower your insurance premiums.

What Are the Disadvantages of Telematics Discounts?

Here are the downsides of enrolling in a telematics discount program:

  • You give up privacy: Plug-in telematics devices can only track vehicle-related events, like acceleration, braking, fuel consumption, speed, location, and idling time. But smartphone apps can track much more, giving the company access to your location data and personal information. Most apps run in the background, collecting telematics data even when you’re not driving. 
  • Information isn’t always accurate: Many insurers using mobile apps for telematics also factor hands-free driving into their rating scores. If you let your child use your phone while driving, the app could ding you for distracted driving. You’d have to dispute the negative trip, which may not favor you if you can’t prove it wasn’t you using the phone. The same is true when you’re a passenger in a car rather than the driver. If the driver of the car isn’t practicing safe driving, you could be negatively impacted. 
  • Not all habits are in your control: The telematics program could put you in the risky driver category if you have a long commute or regularly work the third shift at night. Even if you usually drive safely, some habits outside your control could make you a poor candidate for telematics.
  • Could have future claims implications: Some companies’ apps can detect when you’ve been in a crash and even call for help if needed. While this is useful if you’re alone and incapacitated, insurers could use this information for other purposes. If another driver hits you after running a red light, they’re usually at fault. But if the app shows you were speeding when the accident occurred, the other driver’s insurance company could eventually use that against you to claim you were also at fault.

How To Sign Up for a Telematics Program to get a Discount

How to sign up for a telematics program to get a discount depends on the insurance company. With some companies, you download the app, link it to your policy information, then start tracking your trips.

If you’re switching insurance carriers, the agent may ask if you’re interested in the program. They’ll indicate it in your application, adding the discount automatically. Then, the company will send you the plug-in device with instructions to install or instruct you to download the app to start the program.

If you’re already insured and want to participate in your current carrier’s telematics program, log into your account or ask your agent how to sign up. Then, complete the steps to register for the program and start driving.

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Which Insurers Offer Telematics Discounts?

Man using his phone while sitting in a car

If you’re interested in showing off your driving skills to get a telematics discount, consider these car insurance companies:

Insurance Company Discount
Allstate DriveWise discount varies by state
American Family KnowYourDrive save up to 20%
Esurance DriveSense discount varies by driving behaviors
Farmers Signal discount varies by driving behaviors
GEICO DriveEasy discount varies by state
Liberty Mutual and Safeco RightTrack save up to 30%
Nationwide SmartRide save up to 40%
Progressive Snapshot drivers save an average of $156 annually
Root car insurance save up to $900 yearly
State Farm Drive Safe & Save save up to 30%
The Hartford TrueLane save up to 25%
Travelers IntelliDrive save up to 30%
USAA SafePilot save up to 30%

If you drive less than 12,000 miles per year, you could save with these pay-per-mile programs:

Allstate and Nationwide offer both types of telematics programs. A low-mileage driver who’s also a safe driver stands to save the most on auto insurance by taking advantage of these telematics car insurance discounts.

Go All in With Safe Driving

If you think you’re a good driver, put your driving habits to the test by enrolling in a telematics program. If your current auto insurer does not offer one, avoid website hopping and compare quotes from multiple affordable auto insurance providers on in one fell swoop.

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FAQs About the Telematics Discount

When should I consider a behavior-based telematics program?

If you want to save on car insurance and are a safe driver, you should consider a behavior-based telematics program. This program can help young drivers, those with bad credit, and defensive drivers save the most. Drivers who drive distracted, regularly drive at night or during rush hour, or make risky maneuvers like cornering, fast acceleration, and hard braking might not be the best candidates for usage-based car insurance.

When should I consider a mileage-tracking telematics insurance program?

Drivers who put less than 12,000 miles annually on the road might be able to save with mileage-tracking telematics car insurance programs. Pay-as-you-drive programs may best suit those who work from home, retirees, people who regularly use public transportation, and those who only drive occasionally.

Do you pay for telematics?

If you use the insurance company’s telematics app, you shouldn’t have to pay to participate in the program. But if you use the black box, or plug-in device, that installs into your car, there may be a cost to use the device or for lost telematics devices. Talk with your insurance agent to find out if you have to pay.

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