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Think you know your car insurance coverage inside and out? You're probably fooling yourself. According to a recent survey by Insurance.com, consumers who said they had an "excellent" understanding of their policy actually scored the lowest when quizzed about their car coverage with an average score of 26 percent.

Not that the less-confident among us are doing that much better.

When divided into subgroups by age, gender, geographical region, or self-described expertise, no group scored higher than 39 percent on the Insurance.com quiz. Across all test takers, the average score of 32 percent earned the equivalent of an "F" for everyone.

Those weren't essay questions they had to answer, either: We're talking about 10 multiple-choice questions here.

Slicing and Dicing the Results

There were 500 drivers who answered the 10 multiple-choice questions.

So who scored the best on the quiz overall? It certainly wasn't those who said they read their entire policy. They actually scored a quite low 28 percent, on average.

The people who nailed the quiz -- relatively speaking, with a still unimpressive average of 35 percent -- were those who said they had never read their policy at all.

Here's how results shook out based on gender, age and geography:

    The average score for women was 35 percent, compared to an average of 27 percent for men.
    Drivers ages 40 to 70 scored the highest, at an average of 39 percent, compared to young drivers age 18 to 29, who only got 24 percent of the answers correct.
    Drivers in the South scored highest with an average of 34 percent. Drivers in the Northeast scored the lowest with an average of 29 percent, while those in the West scored 32 percent and drivers in the Midwest averaged 31 percent.



Test Yourself

Just two percent of test-takers got this one right:

"What does comprehensive coverage pay for?" (Select all that apply)

    Damage to my car if I crash it
    Damage to my car if an object falls on it, like a tree
    Damage to my car if I hit an animal, like a deer
    Damage to my car from a flood
    Property damage to others if I cause a crash
    Injuries to passengers in my own car
    Theft of my car


About half of those who took the quiz (55 percent) got this one:
"If your car is totaled, what does gap insurance pay for?" (Select One)

    The difference between the "actual cash value" of the vehicle and the amount owed on a car loan
    The difference between the "actual cash value" of the vehicle and the amount you paid for the car
    The difference between the amount owed on a car loan and the amount your paid for the car


More people (71 percent) knew the answer to:
"If a friend borrows your car and crashes it, whose insurance pays?" (Select One)

    Your friend's insurance
    Your own insurance

Curious to see how you'd fare? Take the test yourself here to see how your score compares.

Worried about what will happen to your car insurance premiums after you get caught committing a minor traffic violation? If you aren't getting traffic tickets frequently, then the results of a new study by InsuranceQuotes.com -- owned by Bankrate.com (RATE) -- may ease your mind.

According to the study, in which drivers answered questions about their histories and premiums, most drivers, regardless of age, aren't paying more for car insurance after getting a traffic ticket.

    Only 31 percent of Americans who received a traffic ticket in the past five years saw their rates go up as a direct result. Of those 31 percent, most paid less than $100 more a year.
    Younger drivers, ages 18 to 29, were more likely to have a higher increase after a ticket, and 41 percent said they paid more as a result of a violation.
    32 percent of 30-to-49-year-olds and 15 percent of drivers over the age of 50 also paid a slight increase.

However, drivers with a history of repeated violations, or significant violations -- including driving under the influence, leaving the scene of an accident, and reckless driving -- almost always were charged higher premiums.

The nonprofit Insurance Information Institute says increases in insurance premiums will depend on the type of moving violation.

For example, going fewer than five miles an hour over the speed limit is considered a minor violation, and could result in a 5 percent to 10 percent premium increase. Going more than 30 miles an hour over the limit, or committing reckless driving offenses like passing illegally, failing to stop, and tailgating can lead to premium increases of up to 15 percent. Just how much will depend on the state the insurance policy was issued in, the driver's record, and the insurance carrier.



Steer clear of Future Increases

Drivers with one minor moving violation can work to ensure their premiums don't go up by avoiding a second ticket, attending traffic safety courses, and keeping all registrations and inspections up to date.

Also, some states have forgiveness rules. In New Jersey, for instance, carriers aren't allowed to raise rates for the first two-point speeding ticket (in most cases). And some insurers will forgive a minor violation for drivers with an otherwise clean driving history. Allied Insurance forgives one minor violation every three years without a rate increase, for instance. Nationwide offers an optional Minor Violation Forgiveness policy. Liberty Mutual and Progressive also offer customers similar options.

The Massachusetts Office of Consumer Affairs and Business Regulation offers a guide to accident forgiveness that can be useful for drivers nationwide.

All drivers, regardless of the number of accidents they've been in, can save money on car insurance by bundling policies, comparing rates regularly, and asking their existing provider for loyalty discounts and other price reductions they might qualify for.

Motley Fool contributor Molly McCluskey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days. You can follow Molly on Twitter @MollyEMcCluskey.

Claims adjusters are checking your Facebook and Twitter, looking for reasons to deny your claim

 

 

What you Tweet can and will be used against you in a court of law.

That's what insurance attorneys are saying when it comes to social networking and car accidents: By no means should you be Facebooking, Instagramming, Pinteresting, LinkedIn-ing or otherwise socially broadcasting details at the scene of the accident.

"Checking social media accounts has become one of the first things an insurance company or adjuster will do when you file a claim," Frank Darras, an insurance attorney in Ontario, Calif., told the automotive information and pricing provider Edmunds.com in an interview published last week.

Darras and other lawyers who represent people fighting insurance companies who deny claims say that in recent years it has become an industry standard for claims adjustors to sift through publicly available content of their customers, seeking out any information that might build a case for them to deny claims or lower payouts.

In some cases the claims adjustors find outright fraud based on Facebook or Twitter posts that contradict details given on claims reports. For example, someone might file a hit-and-run with the insurer but then post contradictory details on Facebook admitting fault.

But insurers go even further. They scour claimants' social networks for clues to driving habits. Post a ton of drifting videos on your profile? It could hint that you're a fan of reckless driving. Post on Foursquare a photo of yourself in a bar parking lot, it could suggest a penchant for drinking and driving. Even bad reviews on eBay could provide hints about the type of person you are.

While a lot of this content doesn't necessarily provide definitive proof of insurance fraud, the material can be used in court in the event of a legal battle, especially in cases involving personal injury.

Jaclyn S. Millner, an attorney at Fitch, Johnson, Larson & Held, P.A., and Gregory M. Duhl, associate professor of law at the William Mitchell College of Law in St. Paul, Minn., pointed out to the Association of Certified Fraud Examiners in a report last year that investigating social networking content that's not protected with privacy settings is not considered an ethical breach.

Furthermore, while ethical codes prevent attorneys and their investigators from clandestine "friending" of targets in order to access content protected by privacy settings , these ethical codes do not extend to investigators not hired by attorneys or by insurance companies themselves. As long as attorneys representing insurance companies do not instruct non-attorney investigators to try to access private content by successfully initiating contact with the target, then any content behind privacy settings may be used in any legal proceedings.

Because of employers' increased scrutiny of social networks, people have started managing their public profiles more carefully. Now that insurance claims adjustors are making it standard operating procedure to scour the Web for reasons to deny claims, people have more reason to be more discreet with the content they share.

 

Think you know your car insurance coverage inside and out? You're probably fooling yourself. According to a recent survey by Insurance.com, consumers who said they had an "excellent" understanding of their policy actually scored the lowest when quizzed about their car coverage with an average score of 26 percent.

Not that the less-confident among us are doing that much better.

When divided into subgroups by age, gender, geographical region, or self-described expertise, no group scored higher than 39 percent on the Insurance.com quiz. Across all test takers, the average score of 32 percent earned the equivalent of an "F" for everyone.

Those weren't essay questions they had to answer, either: We're talking about 10 multiple-choice questions here.


Slicing and Dicing the Results

There were 500 drivers who answered the 10 multiple-choice questions.

So who scored the best on the quiz overall? It certainly wasn't those who said they read their entire policy. They actually scored a quite low 28 percent, on average.

The people who nailed the quiz -- relatively speaking, with a still unimpressive average of 35 percent -- were those who said they had never read their policy at all.

Here's how results shook out based on gender, age and geography:

• The average score for women was 35 percent, compared to an average of 27 percent for men.
• Drivers ages 40 to 70 scored the highest, at an average of 39 percent, compared to young drivers age 18 to 29, who only got 24 percent of the answers correct.
• Drivers in the South scored highest with an average of 34 percent. Drivers in the Northeast scored the lowest with an average of 29 percent, while those in the West scored 32 percent and drivers in the Midwest averaged 31 percent.

Test Yourself

Just two percent of test-takers got this one right:

"What does comprehensive coverage pay for?" (Select all that apply)

• Damage to my car if I crash it
• Damage to my car if an object falls on it, like a tree
• Damage to my car if I hit an animal, like a deer
• Damage to my car from a flood
• Property damage to others if I cause a crash
• Injuries to passengers in my own car
• Theft of my car

About half of those who took the quiz (55 percent) got this one:
"If your car is totaled, what does gap insurance pay for?" (Select One)

• The difference between the "actual cash value" of the vehicle and the amount owed on a car loan
• The difference between the "actual cash value" of the vehicle and the amount you paid for the car
• The difference between the amount owed on a car loan and the amount your paid for the car

More people (71 percent) knew the answer to:
"If a friend borrows your car and crashes it, whose insurance pays?" (Select One)

• Your friend's insurance
• Your own insurance

Curious to see how you'd fare? Take the test yourself here to see how your score compares.

You've probably heard by now that in some vague way, your credit rating has something to do with the premiums your auto insurance company charges you for coverage. But if you're like me, you've probably never quite understood the details of how this work.

Fortunately, the good folks at InsuranceQuotes.com -- a subsidiary of Bankrate (RATE) -- recently published a report that draws back t


 
Blame it on FICO

Used to be, the rate you paid for insuring your car was tied primarily to demographic and personal factors that were clearly connected to the risk that you'd damage your car and ask the insurance company to pay for it: things like your age, sex, marital status, and driving history. It won't surprise anyone that younger, unmarried men are more likely to be risky drivers than soccer moms, and should therefore pay higher premiums. But about 20 years ago, the folks at Fair Isaac Corporation (FICO) found a correlation between low credit scores and a higher risk of filing an insurance claim.

That's not causation, of course -- having bad credit doesn't somehow cause you to crash your car. But according to FICO, "people who choose to effectively manage their finances are also less likely to have future insurance losses." Conversely, there is a "statistical correlation between a person's credit score and the likelihood that he or she will file an auto insurance claim in the future."

Shazzam! Suddenly, FICO had a new way to hawk its credit histories to insurance companies -- and insurance companies had a new excuse to raise your rates.

News Flash: Everybody Does It

Ever since, insurance companies have used this finding to tweak the rates they charge you for insurance. Today, says InsuranceQuotes, "about 97 percent of U.S. insurance companies" do it.

But how do they do it, exactly?

InsuranceQuotes.com wanted to find out, and so they ran some tests, requesting quotes for a hypothetical insurance customer with the following attributes:
he curtain on this little-understood quirk of the insurance industry.

• Age: 45
• Sex: Female
• Marital status: Single
• Accident history: No prior claims
• Insurance history: No lapses in coverage.

In essence, InsuranceQuotes started with the perfect candidate. Neither too young, nor too male, to be considered an unsafe driver. Spotless driving history. Just the person you'd expect an insurance company to consider low-risk and to offer a low insurance rate. Now let's see what happens to her rates as her credit history changes.

• Excellent "credit-based insurance score" (not the same as a FICO credit score): No effect
• Median score: Premium goes up by 24 percent
• Poor score: Premium goes up by 91 percent

Ignorance Is Not Bliss

As you can see, there's some pretty serious coin at stake here. Yet according to a 2005 report out of the Government Accountability Office, roughly two-thirds of consumers surveyed had no idea that their credit rating could affect their insurance rates at all -- much less cost them nearly double for poor credit.

It literally pays to know the truth about this. And the truth is that if you're among the two-thirds who don't know the details of how insurance companies use credit history to determine your rate -- and if you're a customer of one of the 97 percent of companies that engage in this practice -- you're probably paying through the nose for your ignorance.

Let's Fix That

What do we know about how this system works? Not a lot.

Individual insurance companies hold information about their pricing practices close to the vest, calling their methods for setting rates trade secrets. Worse, according to Former Texas Insurance Commissioner Bob Hunter, now director of insurance at the D.C.-based Consumer Federation of America, "every insurance company uses this score differently."

But there are some general rules that appear to hold true across the industry.

FICO insurance underwriting expert Lamont Boyd tells InsuranceQuotes.com that just two factors make up about 70 percent of the credit-based insurance score that insurers use in setting their rates. Specifically:

• 30 percent of your score depends on "how much credit card and loan debt you have compared to how much you are allowed to borrow."
• Even more important, "40 percent of every consumer's bottom line score will be driven primarily by whether or not you paid your credit obligations on time."

Other inputs include length of credit history, collections, bankruptcies, and new applications for credit.

Knowledge Is Power

Knowing this, we can suggest a couple of simple rules that will -- if not necessarily protect you from this insurance industry practice -- at least help to minimize your risk of getting gouged.

• First rule: Don't max out your cards, and always make sure you have lots of credit available to you. That means not necessarily closing credit card accounts just because you don't need the cards anymore (which would decrease your available credit, even as it risks removing beneficial, long-held credit accounts). The key is to have a lot of cushion between the amount you actually owe and the ceiling on your credit limit.
• Second rule: Pay your bills on time.
• Extreme option: If all else fails, you could move to California, Hawaii, or Massachusetts. According to InsuranceQuotes.com, these three states are the only states that ban the practice of setting insurance rates based on credit ratings. (Although two of those states have other downsides: In a state-by-state rundown of most expensive average car insurance costs, California came at No. 7, and Hawaii at No. 15. But Massachusetts falls in the bottom third, price-wise, at No. 35.)

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Have you noticed that your insurance premiums are going up lately? Going up a lot?

You're not alone. According to a new report out from Bankrate.com, more than one-third of U.S. consumers say their insurance costs grew in 2012. In a few cases, this was because people had more things to insure -- they bought a new house, or a second car, or perhaps brought home a new baby, who needed some health insurance. But in the majority of cases -- 62 percent -- consumers say they're paying more simply because their insurance company is charging more.

Insurance professionals estimate the average homeowner's insurance premium has risen 10 percent per year every year since 2008.




What's Behind the Hikes

But is this a case of insurers price-gouging their customers? Or are there legitimate reasons for the rising rates? Actually, it's the latter.

Insurance Information Institute spokesman Michael Barry points out that between "Hurricane Irene, the Joplin tornado that was the single biggest insurance event in Missouri history, and widespread winter storms, tornadoes and flooding in interior states like Minnesota," the past decade has been one of the costliest in terms of natural disasters in U.S. history. And because insurance companies bear a large portion of that cost, it only makes sense that they might need to charge higher premiums to pay for all the claims they've been receiving.

Health care costs, too, are on the rise -- leading to higher premiums for that flavor of insurance as well. Consumer Federation of America insurance director J. Robert Hunter blames health insurance for much of the inflation indicated in the Bankrate survey.

But the real reason is bigger than either of these explanations.

The Float is Sinking

On one hand, yes, insurance companies of all stripes are spending more to satisfy customer claims. The increased costs these companies face drive them to raise their rates to recoup their expenditures. But that's only half of the problem.


To understand the other half, you need to understand how insurance companies work -- how they make their money. This basically consists of three steps:

Step 1 is, of course, to collect premiums.

Step 2 is to invest the money from those premiums until it comes time to pay out on a claim. An insurance company doesn't just put the money under a mattress after cashing your premium check. Rather, it takes this money -- called "float" in industry parlance -- and invests it in the corporate bond market, in federal savings bonds, and in the stock market.

Here's where the problem begins: The interest rates insurers have been getting on their bond investments have been frightfully low these past few years. Similarly, the stock market is in a funk. It's been doing well these past few weeks, true. But the bigger picture shows that the Dow Jones Industrial Average, for example, still hasn't regained its highs of October 2007. That means that for more than five straight years, insurers haven't earned anything on their stock holdings.

And this brings us to Step 3, which is the real problem. Insurance companies were counting on profits from the stock market (and the interest on those bonds) to help cover their costs when it finally came time to pay out cash to satisfy insurance claims. Those profits simply haven't materialized, and as a result, insurers need to find money somewhere else in order to make good on insurance claims from their customers.

Guess where they found it?

That's right. They found it in your wallet. In order to make up the difference between the money they thought they would have, and the amount they actually wound up with, insurers are raising prices. It's really the only solution for them -- and even then, insurance professionals say that there's been little or no profit for insurance companies in homeowners insurance since about 2008.

What Can You Do?

Of course, that's small consolation for those of us footing the bill for the insurers' miscalculation. So what's the solution?

Bankrate offers several ideas for cutting costs, ranging from raising the deductible on your homeowners and auto insurance policies, to dropping collision coverage on an old car, to buying home and auto insurance from the same company. (When you "bundle," insurers will often give you a discount.)

Probably the best thing you can do to mitigate rising insurance costs, though, is shop around for a better deal. Bankrate notes that in some cases, an hour spent on the phone calling insurers and comparing rates can save you in excess of $200 a year. Even if you don't have an hour to spare, though, you can still shop around by asking an insurance broker to do the comparisons for you.

It could "save you 15 percent or more on your car insurance," as one famous lizard famously promised. With any luck, it could even get you back to the prices you were paying before the lizard -- and everyone else -- began raising their rates.

Having the right insurance policies in place can soften the blows from unexpected events that would otherwise mean financial catastrophe for you and your family. But if you're like many people, you may not fully understand all the policies you have, let alone whether they're adequate to meet your needs.

As part of your annual financial checkup, here are some tips to help you assess your current coverage and decide whether you need to make any changes.



Home Is Where the Risk Is

Homeowners insurance may protect you financially in the event of everything from natural disasters to household mishaps. But as millions of homeowners affected by Hurricane Sandy found out the hard way, standard homeowners insurance doesn't protect you against every type of danger.

One of the most common mistakes people make about homeowners insurance is thinking that it covers flood damage. But typical policies specifically exclude flood damage from their coverage. To get flood protection, you have to obtain additional insurance from the National Flood Insurance Program. Similarly, in earthquake-prone areas, you may need to get special earthquake coverage added to your policy, or else it won't necessarily cover damage from a quake.

Even if you have good homeowners insurance, it may not cover all of your belongings. Often, insurers will only cover up to a certain amount for high-value items like jewelry, cash, and artwork as part of their base policies. You'll need to add special provisions for protection above that amount. So if you've obtained any particularly valuable items in the past year, talk to your insurance company about what you need to do to get them covered.

A Matter of Life and Death

The reason we need life insurance is something no one likes to think about, but a policy can be invaluable in providing for your family if something happens to you. Even if you already have coverage, though, doing an annual insurance checkup can lead to cost savings.


As life expectancy has risen over the years, prices of term life insurance policies have generally fallen. So for instance, if you bought a 20-year term life policy 10 years ago, you may find that rates have fallen enough that obtaining a new 10-year policy could actually be cheaper than continuing to pay to retain your existing coverage.

The major area where people make insurance adjustments is in how much coverage to have. Family events like getting married or having a child can boost your insurance needs, so talk to your agent about whether your current policies provide enough benefits to overcome the financial burden your family would face if something happened to you.

Taking a Healthy Interest

Another area where a beginning-of-the-year review makes sense is in health insurance. By now, you should have most of your 2012 medical bills in, and looking at what you spent on health care over the past 12 months can give you valuable information about what type of health insurance is best for you.

Many people pay for expensive insurance plans even when they never use the vast majority of the benefits they provide. By looking at your expenses now, you'll be ready the next time open enrollment season comes around to make smart decisions about your health insurance choices -- potentially saving you a boatload in insurance premium savings while still getting the same benefits you currently use.
What Are Your Wheels Worth?

Auto insurance is expensive, but it's vital to protect you from liability and injury in an accident. Still, you can produce substantial savings by making regular adjustments to your coverage.

One of the easiest ways to save big comes from dropping collision and comprehensive coverage from your policy. Typically, when you have a new car, having collision and comprehensive coverage is smart to protect you from a major loss. Yet as your vehicle ages, the value of collision and comprehensive coverage goes down. Giving that coverage up once your vehicle's value drops below a certain point will produce noticeable monthly savings that you can apply toward a new vehicle or other savings goals.


You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger.

With more and more car insurance providers offering online quotes and sign-ups, switching policies is now easier than making a three-point turn. According to RATE) -- 21 percent of Americans shopped for car insurance in the past 12 months, and of the nearly 43 percent of those who switched carriers, 81 percent said cost was the primary reason. Switchers do their homework: 34 percent of shoppers obtained at least three quotes; 26 percent obtained four or more.




When to Make a Change
a study by InsuranceQuotes.com -- owned by Bankrate (
It's easy to view car insurance as simply a line item on a budget -- until you need to collect. Deductibles, service, and how quickly and how well the car is repaired after an accident are important factors to consider before buying any insurance policy.

Unfortunately, it's impossible to truly know how good a value any insurance product is until making a claim on it. Only then will those discounted premiums prove to have been either an excellent investment or an avoidable calamity.

Would you willingly let your car insurance company play backseat driver every time you hit the road?

Hundreds of thousands of drivers have already invited auto insurance company Progressive (PGR) to ride along. Lured by the prospect of substantial discounts on their car insurance, these drivers are allowing the company to track their driving behavior through its "Snapshot" usage-based program.

Progressive isn't the only company hitching a ride with customers who don't mind their every turn being tracked. (See "Save On Premiums With Pay-As-You-Go Car Insurance" for more.)



Are you really rewarded for good driving?
Progressive claims that its Snapshot program rewards "good drivers" by offering discounts of up to 30%. But a closer look at the driving behaviors they track shows that is not strictly true.

After it's been installed in your car, the Snapshot device collects data about miles driven, the time of day one drives, and braking patterns. While this information may reveal a great deal about the degree of risk a driver imposes on an insurance company, it does not say much about whether someone is a good driver.

To see how this is the case, let's take a closer look at how Progressive uses this data to rank customers as high-, medium-, or low-risk.

• Miles driven: Progressive recommends that drivers not drive more than an average of 30 miles per day (about 11,000 miles annually) if they want to receive a discount. Driving a greater number of miles makes people greater insurance risks. After all, the more people drive, the more likely they are to get into accidents. But mileage alone doesn't make someone a bad driver.
• Driving times: Progressive rewards drivers who are on the road during times that pose lower risks for accidents. For example, it is more likely to reduce rates on customers who do most of their driving in the middle of the day than customers who regularly drive in rush hour traffic. The company is also less likely to decrease rates on those between midnight and 4 a.m. Prospective customers should note, though, that while information about the times of day people drive may indicate their level of risk for accidents, it does not indicate their driving ability.
• Brake patterns: Progressive also rewards drivers who have fewer "hard brakes," (i.e., fewer instances in which they decrease their speed by more than 7 miles per second). While this information can indicate bad driving habits, such as tailgating, braking patterns often have a lot to do with the driving conditions.

So it's not quite accurate to say Progressive's Snapshot program rewards good drivers. Rather, it rewards lower-risk drivers. Good drivers who have long commutes, live in urban areas, or whose schedules require them to drive during high-risk times won't qualify for the discount.

In fact, if that describes your driving patterns, you may end up paying more for your car insurance over time.

The trade-offs
Consumer advocates are concerned that Progressive's Snapshot program will eventually be used to raise rates on customers. And the move toward this outcome may not be straightforward.

Progressive claims that it will not raise rates based on the data gathered through the Snapshot program. However, if lower-risk drivers are earning discounts of up to 30% for their lower-risk behavior, it's likely that Progressive will want to recoup some of the expenses incurred by its higher-risk customers. One way to do this would be to increase the starting rates on customers who do not want to participate in their tracking program and those who do not meet its standards for "good" driving.

Also worth considering is the impact Progressive's Snapshot program will have on the auto insurance industry as a whole. As Progressive reaps the rewards associated with gaining more low-risk customers, other companies will have to make a choice -- either increase rates as the percentage of high-risk drivers in their customer base rises, or implement Progressive's strategy and create increasingly granular insurance offerings to match the risk levels associated with each customer.

So while some drivers may indeed see declining insurance rates, many others will see them rise, through no fault of their own. So before opening your car door and letting your insurer ride along, take a closer look at how the program works, and determine whether the trade-offs are worth the rewards.

Motley Fool contributor M. Joy Hayes, Ph.D. is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter.

Don't want to get locked into a demanding contract or high monthly fees? Then just pay as you go! It's a popular way to finance a mobile phone, but now you can also pay as you go for your car insurance.

For certain people, a pay-as-you-go insurance plan can make a lot of sense and save a lot of money. After all, car insurance is a major expense for many Americans.

The national average annual premium for sedans is about $1,000, though that can vary by a wide margin. For example, in New Jersey, which has some of the highest rates in the nation, the average annual car-insurance premium is about $2,500. In Michigan, it's about $2,000.

Whether you pay $2,500, $1,000, or even $600 per year, car insurance can really pinch a budget, and it's especially frustrating if the insured driver doesn't even take the wheels for a spin very much. That's where "pay-as-you-drive," or PAYD, insurance comes in.




How It Works

Pay-as-you-drive plans involve installing a monitoring device onto your vehicle that typically records when you drive, how far you go, and also how often or hard you brake. As a result, it's your own personal driving characteristics that dictate the premium you're quoted. (Some plans, now or later, will let parents monitor and even restrict teenage drivers.)

In many ways, this new offering improves on the traditional model of car insurance. The old-fashioned approach would price your premium based on factors such as your age, gender, marital status, and even your credit rating. Young, single men, for example, tend to be quoted the highest rates, but many young, single men are careful and responsible drivers, penalized for the behavior of their peers.

Those who stand to gain the most will drive the fewest miles, ideally not at rush hour, and won't exhibit characteristics of aggressive driving, such as frequent or hard braking. Telecommuters and small-town residents are promising prospects.

Who Offers It

Right now, about eight of the top 10 car insurers now offer pay-as-you-drive coverage.

Progressive (PGR) calls its offering "Snapshot" and is offering drivers the chance to test it for free for one month. Its device is plugged into your dashboard, and you're able to review its data online. When the month is up, Progressive will use that data to quote you a price for coverage. Other systems don't use a plug-in dashboard device, but rely instead on certified odometer reading, or the cooperation of OnStar technology.

Allstate's (ALL) system is called "Drive Wise," and the company is offering customers who try it a one-time 10% discount just for doing so. State Farm recently expanded its PAYD coverage to about a dozen states, suggesting that those who drive the least might be able to save 40% and possibly even 50%. (It estimates that a typical driver who covers about 11,000 miles per year would save roughly 12% with a PAYD plan.) Hartford Financial Services (HIG) offers a TrueLane PAYD plan in about half a dozen states.

How Much Can You Save?

It's estimated that about 70% of those who try PAYD insurance will be able to save money with it -- and that savings can be as much as 30% of their regular premium.

Folks at the Brookings Institution have estimated that if everyone used PAYD insurance, two-thirds of households would save about $270 per car.

There are even broader benefits possible if all of America were to adopt PAYD insurance. Per the Brookings Institution: "We estimate driving would decline by 8% nationwide, netting society the equivalent of about $50 billion to $60 billion a year by reducing driving-related harms. This driving reduction would reduce carbon dioxide emissions by 2% and oil consumption by about 4%. To put it in perspective, it would take a $1-per-gallon increase in the gasoline tax to achieve the same reduction in driving."

Savings vs. Privacy

PAYD is not a perfect solution to the car-insurance challenge. One of the biggest knocks against it is that it invades your privacy. After all, the insurance company isn't going to just take your word that you only drove your Camry 23 miles in the last month.


Worried that you might try a pay-as-you-drive plan, not be offered a better rate, and then find your premium hiked because of the insurer's findings? Progressive says that won't happen. It also points out that its device doesn't use GPS technology, so it's not keeping tabs on where you go. (Some insurers may employ devices with GPS technology, though.)

As more data are collected under this new system, it will be possible to set rates more accurately, and more insurers will be likely to start offering PAYD. Progressive has reportedly collected 5 billion miles' worth of data already.

So the next time you renew your policy, give pay-as-you-drive insurance some consideration. Ask your insurer if it's offered and whether you can take it for a test-drive.

Longtime Motley Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any company mentioned. Click here to see her holdings and a short bio.

If a car tops

And brace yourself for insurance premium sticker shock.

Young drivers keep insurers up at night, and you'll pay the price once your prince or princess gets behind the wheel. The accident rate for drivers ages 16 to 19 is higher than for any other driver age group. Sixteen-year-olds top the list, with an accident rate 3.7 times higher than drivers of all ages, and 1.8 times higher for accidents involving alcohol. The majority of citations given to teens -- 52 percent -- are for speeding, according to Tasha Lockyer, auto insurance editor for NextAdvisor.com, an independent consumer information site.



Car sales are expected to be healthy this month and into the first quarter of next year as prices decline from summer highs, says Lacey Plache, chief economist for car site Edmunds.com. So if you also want to get a deal on car insurance for your child, here's what you need to know.




Consider What Counts

When it comes to what makes up the price of your premium, a few factors come into play, such as the type of car being insured, the age and driving record of the person being insured, and the amount of coverage in the policy, notes Phil Reed, senior consumer advice editor at Edmunds.com.

Where and how often you drive also count. Urban areas are usually more expensive than suburban ones, due to higher rates of vandalism, theft, and accidents. If you live in a city, expect to pay more. The more you drive, the more you can expect to pay. "If your teen is just going to be driving to school and back, make sure you include that information in your quote," says Lockyer.

Speak Up

The squeaky wheel gets the grease. Ask for discounts. For example, full time students can cost a little less to insure because many companies offer "good student" discounts (usually requiring a B average or 3.0 GPA), typically between 10-15%. "The discount is significant. Explain it to your teenager and offer to split the savings if they hold up their end of the bargain by meeting the GPA required by your insurance company," says Reed.

Then too, if you've been a loyal customer with few or no claims over a long period of time, you might be able to use that as leverage in getting a better rate.

According to editors at shopautoweek.com, if you insure your child on your policy, you might be able to get the insurance company to assign the least expensive car in your house to that teen. Then make sure that's the only car that your teen drives.

Pick Your Car Wisely

You can go back and forth for days about buying new or used. When you're shopping for a car, decide what type you'll be buying, then call your insurance company and ask about the differences in the premium between new and used, and among various makes and models. You can save a good amount of money by choosing a car with a lower premium, says Lockyer. SUVs and high performance cars in particular can be more expensive to insure.

Consider too that discounts are sometimes given for particular safety features and theft prevention items like auto alarms. You also might benefit by agreeing to install a tracking device that monitors your child's driving.

Read Them the Riot Act

As the holidays are a celebratory season, have a serious talk with your teen about the responsibility involved in driving safely and wisely. The majority of teen driver fatal car crashes occur between 9 p.m. and 3 a.m. "Consider limiting your teen's driving after 9 p.m.," says Lockyer.

It might help your rates, as well as your peace of mind, to sign your teen up for a "safe driver" program.

Know the Laws

Many states have graduated driver's license laws. In general, this means that young drivers can only drive with a licensed adult for the first 6 to 12 months of being licensed. Many of these laws exclude driving at night and limit the number of passengers, and/or underage passengers, a teen driver can have in the car. "Be aware of the laws in your state," advises Brian Moody, lead editor for the car marketplace site, AutoTrader.com.

Once you have the insurance figured out, then there's that other matter -- making peace with the thought of your baby on the road.

your teen's holiday gift wish-list, give as much consideration to insurance as you do the car's make and model and the debate over whether to buy new or used.

 Source: http://www.dailyfinance.com

When vacationers rent cars this summer for their adventures, the big debate isn't likely to be about whether to get a compact, a mid-size or a full-size, but whether to sign up for the insurance the rental company is offering.

Gas prices are already making road trips more expensive than they were last summer, so the extra $7 to $14 a day -- or as much as $40 per day for more comprehensive rental car insurance -- might be tempting to pass up. Whether or not you should is a something you should figure out long before you get to the counter.



"You should not make a snap decision," says Loretta Worters, vice president of the nonprofit Insurance Information Institute. "Some renters either purchase all of the coverage or they decline the insurance without knowing if they are covered by other policies. This can result in either wasting money by purchasing unnecessary coverage or having gaps in coverage, making the driver dangerously uninsured."

Generally, your personal auto insurance will cover you when you rent a car. In most cases, whatever coverage and deductibles you have on your own car would apply when you rent a car, provided you are using the car for recreation and not for business, says Worters. If you dropped either comprehensive or collision on your own car as a way to reduce costs, you will not be covered if your rental car is stolen or damaged in an accident, so you'll need to buy it, she adds.

However, do find out if your own policy covers your car rentals for travel, as opposed to just rentals while your own car is being serviced, points out Greg McBride, a senior financial analyst with Bankrate.com. Know too, that if your current car insurance policy has a high deductible, you might want to get the rental agency's coverage. "Do you really want to fork over a large deductible because somebody smashed a car that isn't even yours?" asks McBride.

If during your trip you will add authorized drivers who aren't covered under your car insurance, get rental car insurance from the agency, says Jimmy Spears, assistant vice president of auto claims for USAA.

Plastic Provides Partial Protection

Many credit cards also cover car rental insurance, but be sure you know the details of what your card covers before you rely on it. "Some coverage may not kick in until all benefits of your existing car insurance policy are exhausted," says McBride. The insurance offered by credit cards usually cover only damage to or loss of the rented vehicle, not for other cars, personal belongings or the property of others, says Worters. There may also be no personal liability coverage for bodily injury or death claims. And while credit card companies will provide coverage for towing, many may not provide for diminished value or administrative fees, she adds. Some card issuers have changed their policies, so you may not have as much protection as you thought, says Worters.

To be sure what's what, call the toll-free number on the back of the card you'll be using to rent the car. Ask the credit card company or bank to send you their coverage information in writing. If you have several credit cards, check with each to see who is offering the best deal.

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Proceed with caution at the counter

If you do decide to go with the rental agency's insurance, here's what you need to know.

Avoid gotchas: Be sure you get sufficient coverage. "Make sure the insurance levels are right. How much liability insurance does the agency provide? Make sure it would be enough to cover you if you are sued, for example $1 million or more," says Chris Kissell, managing editor at Insurance.com. For collision coverage, it's the amount you think the car is worth.

"There are often conditions attached to the insurance that people may overlook. For example, driving under the influence, speeding or other reckless or illegal behavior may void some or all of the coverage you purchase from a rental agency. Even something as seemingly innocent as driving on a gravel road can void your coverage, so you need to know exactly what is covered," warns Kissell.

Do ask the rental agency in advance if they will need to do a credit check and examination of your driving record before offering you insurance, which is becoming more common, adds Kissell.

Be clear on fees and conditions. "They can charge you extra for the time they can't rent out the car that you damaged," says Dan Weedin, an insurance and risk management consultant.

Know too, that if you total a car that now has more money owing on it than it's worth, then you can be charged for that diminution of the car's value, adds Weedin. If you purchase the full physical damage coverage, you get the peace of mind of knowing that you can simply turn it in, regardless of scratches, dents or worse, and not have any liability, says Weedin.

Many rental companies now impose various fees after an accident that you will be responsible for. "These fees can include towing, storage, impound fees, loss of use, administrative services. Administrative and diminished value fees vary widely, costing anywhere from several hundred to several thousands of dollars if you are involved in a car accident, says Worters.

Do not assume that you are fully covered by your own auto policy in all situations, especially if you're renting a car abroad, points out Spears. Weedin recommends that you call your auto insurance agent to go over everything your policy might exclude, including territory of operation. You may need to bite the bullet in these cases and purchase full coverage.

Learn the Lingo

• Loss Damage Waiver: Also referred to as a collision damage waiver outside the U.S., an LDW is not technically an insurance product. LDWs do, however, relieve or "waive" renters of financial responsibility if their rental car is damaged or stolen, explains Worters. In most cases, waivers also provide coverage for "loss of use," in the event the rental car company charges the renter for the time a damaged car can not be used because it is being fixed. It may also cover towing and administrative fees.

• Liability Insurance: By law, rental companies must provide the state-required amount of liability insurance. Generally, these amounts are low and do not provide much protection. If you have adequate amounts of liability protection on your own car, you may consider forgoing additional liability protection.

• Personal Accident Insurance: This covers you and your passengers for medical and ambulance bills for injuries caused in a car crash. If you have adequate health insurance or are covered by personal injury protection under your own car insurance, you may not need this additional insurance. It usually costs about $1 to $5 a day, says Worters.

• Personal Effects Coverage: In case a thief rips off items in your car, you're covered. But if you have a homeowners or renters insurance policy that includes off-premises theft coverage, you are generally covered for theft of your belongings away from home already, minus the deductible. If you purchase this coverage through the rental car company, it generally costs between $1 and $4 a day, says Worters.

Unfortunately, says Kissell, "There is no easy way to say whether the cost of car rental agency insurance is 'worth it'. At the end of the day, it's all about weighing your risk against your reward."

Your worst choice is to skip coverage altogether. Says Kissell, "Regardless of the expense, you need adequate coverage. It's crazy to get behind the wheel without it."

The pay-as-you-go trend has already spread to a wide variety of consumer services ranging from wireless to software. Now it looks like auto insurance might be the next industry to jump on the bandwagon.

The idea behind it is simple: People should only pay for the insurance coverage that they actually use. In other words, drivers who drive less would pay less for insurance.



Consumer groups and some economists have demanded this type of coverage for years, and their lobbying has paid off. Last month, Progressive Insurance began advertising its Snap Shot Discount pay-as-you-go product nationally. Its available in 32 states.. State Farm and Allstate also offer similar deals in a handful of states.

Texas spearheaded the movement: It was the first state to allow such coverage back in 2001, while California -- a state that often begins auto trends -- only began permitting it in December.

Big Discounts for More Data

The industry argues that these policies can save consumers a bundle. Progressive estimates potential savings of $150 a year, for example. "Pay-as-you-go insurance can be an excellent choice for people who drive very few miles during the week," Chris Kissell, managing editor of Insurance.com, writes in an email.

But experts caution that pay-per-mile policies aren't right for everyone. For one thing, to determine eligibility, insurers typically install a device that tracks customers' driving habits for some time -- usually about six months, Kissell says. "Some drivers may not be comfortable with this and may see it as an invasion of privacy," he writes.

Some of the programs also have strict rules about when customers can drive and may disqualify customers from getting the discount if the tracking device shows that they often drive late at night, he adds.

An Invasion of Privacy?

Progressive's program has drawn the ire of consumer groups because it requires drivers to install a "Snapshot" device, which monitors how far -- and when -- people drive. The device, about the size of a garage-door opener, collects data for 30 days before the company decides if a driver is eligible for the pay-as-you-go discount.

Carmen Balber of Consumer Watchdog argues that drivers should not have to give up their rights to privacy to get a good rate on car insurance. She also argued that drivers who are on the road late because they work the late shift are unfairly penalized by these programs.

Progressive, the fourth-largest auto insurer, began working on the concept of usage-based insurance in
1998 and made it broadly available in 2008. It rejects the notion that consumers are getting a bad deal, saying that about a quarter million drivers have signed up.

"Snapshot is best for people who drive less, in safer ways and during safer times of day," Brittany Senary, a Progressive spokeswoman, writes in an an email. "Those are the drivers who are most likely to get a discount." Drivers' rates are guaranteed not to increase as a result of Snapshot, she says, adding that the discount isn't based on location or speed. "The device does not have GPS, so we don't know where the car is," she writes.

More Per-Mile Programs

Like Progressive, Allstate also requires drivers to install a vehicle-monitoring device about the size of a pack of cigarettes to quality for its per-mile policy. Customers get a 10% discount for enrolling in the Drive Wise program, which launched in Illinois in December and could expand to other states this year, and could be eligible for additional discounts, depending on their driving habits. "Is a rewards-based program," spokeswoman Stephanie Sheppard says in an interview. "There are no penalties."

State Farm's Drive Safe and Save program gives customers a 5% discount for enrolling, as well as the possibility of additional discounts depending on the miles they drive. The program is currently offered only in California and Ohio, although the company plans to expand it to Illinois and Texas. In California, drivers can simply report their mileage, but in other states, State Farm only enrolls drivers whose vehicles are equipped with On Star, which can track vehicles' miles. As with Progressive, the savings from this plan can be considerable, but also can vary widely.

Saving the Environment

Not only does usage-based auto insurance save consumers money, it's also good for the environment, according to a 2008 report from the Brookings Institution,

"Just as an all-you-can-eat restaurant encourages more eating, current insurance pricing encourages more driving," the report says. "The extra driving that results from this inefficient system leads to more accidents, more congestion, more carbon emissions, more local pollution, and more dependence on oil. This pricing system is also inequitable because low-mileage drivers subsidize insurance costs for high-mileage drivers, and low-income people drive fewer miles on average."

Source: http://www.dailyfinance.com

It's no secret that drivers in different states pay different rates, even when their driving records are

The survey averaged coverages from six providers per state for a 40-year-old driver with a 12-mile commute to work. The quotes were for a yearly policy with $100,000 coverage for a single person, $300,000 for all injured and $50,000 for property damage.

 


Michigan, $2,541
    Louisiana, $2,453
    Oklahoma, $2,197
    Montana, $2,190
    Washington, D.C., $2,146
    California, $1,991
    Mississippi, $1,896
    New Mexico, $1,896
    Arkansas, $1,836
    Maryland, $1,807
    North Dakota, $1,794
    Connecticut, $1,786
    Rhode Island, $1,747
    Wyoming, $1,714
    Hawaii, $1,707
    South Dakota, $1,707
    Georgia, $1,670
    New Jersey, $1,663
    West Virginia, $1,633
    Kentucky, $1,629
    New York, $1,627
    Minnesota, $1,614
    Washington, $1,584
    Missouri, $1,563
    Indiana, $1,518
    Colorado, $1,508
    Texas, $1,492
    Delaware, $1,489
    Florida, $1,476
    Nebraska, $1,470
    Pennsylvania, $1,468
    Kansas, $1,461
    Alaska, $1,454
    New Hampshire, $1,334
    Massachusetts, $1,328
    Idaho, $1,325
    Alabama, $1,306
    Oregon, $1,306
    Nevada, $1,300
    Illinois, $1,290
    Arizona, $1,280
    Utah, $1,272
    Virginia, $1,237
    Iowa, $1,179
    North Carolina, $1,154
    Ohio, $1,152
    Tennessee, $1,146
    Wisconsin, $1,128
    Maine, $1,126
    South Carolina, $1,095
    Vermont, $995

Why is there such a difference (255%) between the most and least expensive? According to Insure.com, the reasons are several.

The primary one, however, is uninsured motorists. In states with a lot of uninsured motorists, the insured must kick more money into the pool to cover accidents in which they are involved.

According to 2007 data compiled by the Insurance Research Council, the top states with uninsured motorists were:

    New Mexico, 29%
    Mississippi, 28%
    Alabama, 26%
    Oklahoma, 24%
    Florida, 23%

The states with the fewest uninsured drivers were:

    Massachusetts, 1%
    Maine, 4%
    North Dakota, 5%
    New York, 5%
    Vermont, 6%

The leading state in insurance premiums, Michigan, finished 10th with 17%. So why was it No. 1? For one reason, of all the states, only Michigan has no cap on personal injury protection payments to those hurt in a vehicle accident. A separate, not-for-profit, state-originated association picks up payments only after the insurance company has paid out almost half a million dollars in claims, in addition to three years of lost wages and damage replacement costs. Of course, all of these expenses are paid for with insurance premium dollars.

Insure's report also suggests that the friendly climate for litigation in Louisiana helps drive up its premiums, while violent weather does the same for Oklahoma drivers.

At the other end of the spectrum, Vermont's low premium is, according to one expert, a function of low traffic volume and "rural sensibilities."

Concerned about the cost of car insurance? Then you might also consider which car you drive. It can make an even larger difference than where you drive it.
very similar. Recently the website Insure.com did a comparison of state automobile insurance costs, identifying the priciest and cheapest states for car insurance.


Source: http://www.dailyfinance.com/