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Your Auto Insurance Questions About "Pay-as-you-go" Answered

Wednesday, April 20th, 2011
Q: My auto insurer now offers “pay-as-you-go” auto insurance. Is it really cheaper than regular insurance?

A:
Pay-as-you-go coverage is the latest trend in the auto insurance industry—essentially your insurance premium is based on how many miles you drive. Generally, this kind of coverage targets consumers who drive less than 15,000 miles a year. Generally, the less you drive, the less you’ll pay.

Some of the biggest names in the industry have rolled out their versions of pay-as-you-go coverage, including Allstate Insurance Co., GMAC Insurance, Progressive Casualty Insurance Co., and State Farm Insurance, although coverage is not available in all states.

Insurers say pay-as-you-go can save drivers hundreds of dollars, with some saving up to 50% of their current premiums. A 2008 study by the Brookings Institute found that if all motorists paid for insurance per mile, rather than in a lump sum based on a number of factors, it would save each household an average of $270 per car.

While there are certainly consumers who can benefit from this type of coverage, there’s always a catch. In order to qualify for the discount, you typically have to install a tracking device in your vehicle. (You didn’t really think they’d take your word for it, did you?) The devices monitor your driving over a period of months, and the rate you pay is based on your driving patterns.

For example, Progressive’s “Pay as You Drive” program requires drivers to install a “SnapShot” device that totes the number of miles driven.

“After 30 days, the customer can log in to their policy to see how much of an initial discount they’re earning and what changes they can make to their driving habits to save even more. At the end of the six month policy term, the customer returns the device to Progressive, and Progressive calculates the final discount. The initial discount is applied to the first six-month policy term and the final discount applies to policy terms going forward,” according to the company’s Web site.

Consumer groups warn that these devices pose a privacy risk. Although some insurers say they don’t track vehicle speed or its location, it’s certainly possible to do so. Other insurers do track such things as how fast you drive and how hard you brake—and penalize drivers in the program for it. (In fact, this type of coverage might be ideal for nervous parents who like the idea of Big Brother tracking their children’s driving habits.)

If you’re a careful driver who drives infrequently, a pay-as-you-go program may save you money. Before switching to this type of coverage, however, speak to an insurance agent or your financial adviser about group discounts that may be available by combining all of your insurance products (home, car, boat, life, etc.) under one insurer.



ASK THE EXPERT: ANSWERS FOR PHARMACISTS
Do you have a personal finance or financial planning question? Email me at tcullen@hcplive.com and I’ll answer them for you and we’ll post answers (with no personal information) here at “On the Money.” Or you can leave a comment for your colleagues. You can also sign up for Physician’s Money Digest’s weekly eDigest email of money articles relevant to today’s health care professionals at www.physiciansmoneydigest.com/signup.
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Terri Cullen, Managing Editor, Physician's Money Digest
Blog Description
This financial expert blogs on financial information, advice, and news you can use.
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ABOUT TERRI CULLEN, Managing Editor, Physician's Money Digest

When Physician's Money Digest launched as a monthly print publication in 1994, the United States was powering out of its last recession, the economy was growing at a healthy 4% clip and unemployment was at its lowest levels of the decade. But Healthcare Reform under then-President Bill Clinton had just belly-flopped spectacularly, and doctors were fuming that legislators had failed to fix the flawed Medicare physician payment formula or nationwide medical liability reform.

Flash forward to today: The economy is struggling to claw its way out of the deepest recession since the Great Depression, and long-term unemployment is a record levels. But health care reform under the Obama administration passed with great fanfare--yet we're still are no closer to fixing the flawed Medicare physician payment formula or nationwide medical liability reform nor have we addressed reimbursement issues for pharmacists.

In my 13 years as a senior editor and columnist for The Wall Street Journal Online, I witnessed entire industries adapt and change in response to advances in technology and the changing global economy. But rarely have I seen a profession undergo such a dramatic reversal in fortunes in such a short amount of time.

The tough decisions law makers continue to put off until tomorrow are today causing an alarming number of doctors--and other health care professionals--to put off retirement, close or limit their practices, or eschew primary care as a profession entirely. In addition to providing customized personal finance and financial planning advice, this new blog for Pharmacy Times will cover financial topics of concern to all pharmacists as well--and I will answer specific questions from pharmacists as they plan their personal financial futures.

Now, more than ever, all health care professionals need to focus on their financial health, and this includes pharmacists from every segment of the profession. As Managing Editor of Physician's Money Digest, I remain committed to bringing readers the latest in-depth news, personal financial advice, and investing information that directly impact your practice and your pocketbook. Please continue reading here for financial information that will help you in your personal and professional life.
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