Key Takeaway: Usage-based insurance can help lower your auto insurance premium if you drive safely or limit your mileage, as long as you’re comfortable with your insurer monitoring your driving behavior.
Usage-based insurance, also called UBI or telematics insurance, is a newer type of auto insurance that looks at factors such as how many miles you drive or how safely you drive to determine your auto insurance premium.
If you typically drive short distances or stick to the speed limit, for example, you might find you qualify for a lower premium with UBI versus traditional auto insurance.
There are several kinds of UBI, including pay-as-you-drive and pay-how-you-drive.
Depending on your driving habits, UBI may or may not be a good fit for you. Let’s take a look at how usage-based insurance works, what the various types are and what factors to consider if you’re trying to decide whether to opt for UBI.
- How does usage-based insurance work?
- Types of usage-based insurance
- What companies offer usage-based insurance?
- Is usage-based insurance worth it?
How does usage-based insurance work?
While traditional car insurance carriers may look at factors such as your age, location and insurance score to determine your premium, usage-based insurance also considers your driving habits to calculate your premium.
UBI can be a win-win for both insurance companies and drivers. Some drivers can snag a lower premium with UBI than with traditional insurance, while insurance companies benefit by motivating policyholders to drive more safely.
“How much you save depends on the plan and how you drive, naturally, but typically, you can reduce your rate by 10% to 30%,” says Penny Gusner, an analyst for Insurance.com.
With a UBI program, your insurance company will track your mileage and/or driving habits with telecommunication devices called telematics. UBI is sometimes called connected car insurance because data may be collected and sent to your insurance company through a self-installed plug-in device, a smartphone app or equipment built into your vehicle.
“Telematics uses cellular, GPS and other technology to collect information on how motorists drive, and tracks time of day and vehicle speed, how many miles you drive and sudden changes in speed, or how often you brake hard or accelerate significantly,” Gusner says.
The information an insurance company collects is based on the type of UBI program it offers.
What are the different types of usage-based insurance?
Usage-based insurance generally falls into two categories based on what data the insurer prioritizes: pay-how-you-drive and pay-as-you-drive.
Pay-how-you-drive insurance programs
Pay-how-you-drive programs, also known as behavior-based insurance, monitor driving behaviors such as speed, acceleration, braking habits and the time of day you drive. These programs use your personal driving behaviors to help establish your risk profile.
UBI programs that track driving behavior generally collect data for a specific period of time — typically until your next policy renewal — to establish your habits and discount your premium, if you qualify. Some may also give you an immediate discount of 5% to 10% when you sign up for the program.
Pay-as-you-drive insurance programs
Pay-as-you-drive programs, also referred to as pay-per-mile car insurance or pay-as-you-go plans, track how many miles you drive. With UBI programs that track only mileage, the company will often charge you a monthly base rate plus a per-mile charge.
Keep in mind that an insurance company’s UBI program details may vary by state or not be available in certain states.
What companies offer usage-based insurance?
Here are brief summaries of some usage-based programs out there.
- Allstate Drivewise — The mobile app tracks your speed, breaking habits, phone usage and the time of day you drive to determine your cash back.
- Esurance DriveSense — The app measures a range of driving behaviors, such as miles driven at high speeds, hard braking and major speed changes.
- Liberty Mutual RightTrack — The program tracks nighttime driving, braking, acceleration and in many states phone use and rush‑hour driving to calculate your safe‑driving discount.
- Metromile — You pay a monthly base rate plus a per‑mile charge. Typically, a plug‑in device and app tracks how many miles you drive to determine your monthly premium.
- Nationwide SmartRide — The app measures miles driven, hard braking, acceleration, idle time and night-time driving.
- Progressive Snapshot — The Snapshot device or mobile app tracks your mileage, the time of day you drive, how you drive and, in some states, phone use while driving to calculate your premium.
- State Farm Drive Safe & Save — The mobile app measures mileage and behaviors like acceleration, braking, cornering, speed and distracted driving.
- Travelers IntelliDrive — The app captures the time of day you drive, along with your speed, acceleration, braking and distractions.
Check with your insurance agent or the insurance company for more details on these programs.
Is usage-based insurance worth it?
Usage-based insurance may be worth it if you have safe driving habits or don’t get behind the wheel often. Think about these factors to help determine if a usage-based insurance program might be a fit for you.
Your driving habits
If you’re a safe driver, you may be able to get a lower premium with a UBI program. You may also be able to save money if you’ve made one or more previous accident claims. UBI plans measure driving in real time using telematics and may not rely as much on historical data like your driving record.
When shopping for a UBI policy, look at all of the factors each company monitors and weigh them against your driving habits. For example, if you drive to a late-shift job every night, you may not save much (or any money at all) with a UBI plan that measures the time of day you’re driving — some insurance companies consider daytime driving to be safer.
How comfortable you are with data collection
You should also consider whether you’re willing to trade potentially lower auto insurance premiums for privacy. Having your driving habits, mileage and phone use monitored may or may not be worth the potential savings for you.
Before you sign up for a UBI program, Gusner says, make sure you know exactly what the plan monitors and who — if anyone — the company shares the data with.
What’s next?
If you’re a safe driver or work remotely, have a short commute or log low mileage in general, usage-based insurance could help bring down your auto insurance rates.
Be sure to shop around and compare car insurance programs to understand what data the insurance company collects, how much you could potentially save and how the program works in your state.