Are you trading your privacy for a lower bill?

3 questions to ask before using a plug-in device to save on auto insurance

Matthew Mangiapane considers himself a pretty good driver, though certainly not perfect.

"I've only really been in one accident.  That was some time ago.  And I've gotten one speeding ticket," he said.

So, when Mangiapane heard about a device he could install in his car, allowing the insurance company he uses to track his driving and potentially save on his premiums, he was all for it. 

"They sent me the device. I plugged it into my car and based on my driving I was able to reduce my insurance by 29 percent," he added.

It's referred to as usage-based insurance, a voluntary program accelerating in popularity among insurance companies.  There are more than 18 currently offering this option, including Progressive, State Farm and Nationwide. It wirelessly transmits data about how you are driving and sends it real-time to insurance companies. 

"If you're a safe driver, if you're not stomping on the gas pedal and slamming on the brakes and swerving in traffic and exceeding the speed limit, you're going to get a better insurance rate than people that are unsafe drivers," explained Bob Rusbuldt, president and chief executive officer of the Independent Insurance Agents & Brokers of America, Inc.  

But, some may have concerns if the feedback shows you aren't the great driver you think you are.

"What the insurance companies are saying today is you will not get a higher premium by entering this program and your driving habit showing that you don't qualify for the premium discount. You'd be in the regular underwriting pool.  Now, will that change in the future? I think the jury is out," said Rusbuldt.

Some experts argue this is a much better way of setting rates than the current options. 

"Right now, insurance companies use a whole host of other factors in determining the price of your premium: your age, your gender, your marital status, your credit reports," said Rushbuldt. "This actually only takes into account one thing: that is your driving habits." 

But before you give your car insurance company the green light on tracking you, privacy rights experts say you should ask three critical questions.

"First, do they use GPS? Second, does any third party have access to the data like advertisers or marketers? And then third, can those records be subpoenaed? The answer is almost always yes," advised Pam Dixon, executive director of the World Privacy Forum.   

Some companies may allow you to opt out of the location tracking portion. The key is to understand the terms and conditions before you decide which way to turn.  

"Every person has to do the risk/benefit calculus," said Dixon. "Is it more privacy risk for me or is it more pricing benefit?" 

It was a no-brainer for Mangiapane.  After a year of driving with the device, he now pays $90 a month for coverage, instead of the $140 he paid before.

"It was worth it for me," he said.

How long the device must stay on the car varies from company to company and driver to driver. Some request just a few weeks, while others want it left on for a full year.  We're told the intent is to get a good look at the big picture, not just one day behind the wheel.