In the dim and distant past, someone working for the insurance industry had a good idea. Just as people pay by the minute for their telephone calls, perhaps they should also pay by the mile for their vehicle insurance. You can imagine the awed silence around the table as everyone dreamed of a world without dishonesty. Then, with a sad shake of the head, the idea was buried. No one can be relied on to tell the truth about how far they drive. You only have to look at the reality when the FBI stages a bus crash at an intersection. Half the passers-by run to the bus, climb on board and then fall down injured. At heart, everyone is open to the opportunity for a little extra cash. If this might come from a claim against the bus company for injuring its passengers. . . Well, who cares as long as the cash follows. Now translate that into people self-certifying how many miles they drive a week or month. As we said, this was a good idea that came along before its time.

Have you noticed how many computer chips are now showing up in our cars? It’s amazing how clever some of our vehicles are, deciding how to brake safely in difficult driving conditions, producing more gas efficiency and less emissions. It’s a miracle how we could ever get from A to B before all this technology came along. It’s even possible for the vehicle to tell us how to get from A to B with a computer-generated voice advising on the best route to avoid the slow-moving traffic. Now that’s a miracle.

To make all this possible, the vehicle has to be able to transmit its position to a GPS satellite and calculate where you are on a map. So the vehicle already knows when you drive, where you drive and, if the right program was written into the central processing unit, how well you were driving. It can easily record your pattern of acceleration and braking. From an insurance company’s point of view, this information is like gold. If the vehicles were transmitting this information live to the insurer’s computer, it could bill you by the mile depending on where you were driving and at what time of the day or night. So if you’re out at 2 a.m. driving fast, swerving round bends and leaving rubber on the roads, your premium rate can go up because you’re proving yourself high risk. But if you are driving gently at an off-peak time and never do more than short runs to and from school for the kids, and then down to the mall, your rates reflect your safe lifestyle. Continue reading this post…

Insurance while driving is one of these legal mandates that makes common sense. It all comes down to a question of financial responsibility. Most of our law is based on the idea you should always pay to put right whatever you do wrong. So if you are careless and damage the property of a friend while visiting, you are expected to pick up the bill for its repair or replacement. It could be just a few dollars when you knock over a bottle of beer. It might be more serious if you break an expensive vase. Either way, as a guest in someone’s home, you would usually feel honor-bound to make good on the loss.

Now put yourself behind the wheel of a vehicle. You mess up, coming round a bend too fast and fail to stop in time, crashing into the rear of a truck carrying expensive vases. The law says you should always be carrying a minimum amount of cover to pay for the damage you cause. In this, the lawmakers are reasonably generous. They know not everyone holds cash in a bank to cover these losses, so they make insurance mandatory. If the minimum is not enough, you are still liable to pay the difference. Should you have assets or a reasonably good pay check coming in each month, you could find yourself on the wrong end of a law suit.

So this should make you ask two different questions. First, how much insurance cover should you buy? The answer to this, like all good legal questions, is “it depends”. If you have no assets and earn very little, it’s uneconomic for anyone to sue you, so you might take the practical view that the minimum is enough. But if you have a good job and you are doing well enough to have positive housing equity, it’s worth carrying a lot more than the minimum to protect your home and any other assets.

The second question is how big a deductible you should accept. The insurance company tempts you into accepting up to $1,000 of any claims by giving you a discount. In these hard economic times, it can look a good deal to accept the maximum deductible. It takes some of the pressure off the family budget when the premium rate comes down. But let’s say you agree to pay the first $1,000 of any claim, can you afford it? Remember life is not always fair. In the accident, you damage your own vehicle. You are looking at the bill to repair it, plus the $1,000 on the deductible. Can your credit cards soak up all this as a lump sum? When you add in the interest payments on this extra borrowing, which was the better deal? Paying a few dollar a month more on the insurance policy, or hitting your credit cards with all this grief? Continue reading this post…