In a NutshellWith usage-based insurance, an auto insurance company calculates your premium based on your driving behavior. The company uses a telematics device — such as a plug-in device or mobile application — to track factors like your mileage and speed. If you’re a safe driver, usage-based insurance could lower your auto insurance policy rates.
If you’re a safe driver and willing to prove it by having your insurer monitor your driving habits, you may be able save on your auto insurance.
Usage-based insurance, or UBI, is a newer type of auto insurance that looks at additional factors, like how many miles you drive or how safe of a driver you are, 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.
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 may use factors such as your age, location and insurance score to determine your premium, usage-based insurance also considers your driving habits to calculate how much you’ll pay for coverage.
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 and CarInsurance.com.
With a UBI program, your insurance company will track your mileage and/or driving habits with telecommunication devices called telematics. Data may be collected and sent to your insurance company through a self-installed plug-in device, a smartphone app or equipment already installed in your vehicle by the manufacturer.
“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. “Some also track how much you idle. Still others may also include “cornering” (how you take a corner) and phone use behind the wheel.”
The information an insurance company collects is based on the type of UBI program it offers.
Types of usage-based insurance
Usage-based insurance generally falls into two categories. One type of UBI monitors driving behaviors such as mileage, the time of day you drive and changes in speed. These may be referred to as pay-how-you-drive programs. The other type only tracks how many miles you drive and may be called pay-as-you-drive, or PAYD, pay-as-you-go or pay-per-mile plans.
Pay-how-you-drive insurance programs
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.
With some insurance companies, such as Progressive, your premium may increase through its UBI program. But other companies, including Nationwide, promise that their UBI programs can only discount your rate.
Pay-as-you-go insurance programs
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 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.
- Karma Drive — With Karma Drive, a usage-based insurance program in partnership with Progressive and Allstate, Credit Karma members take a test drive through the Credit Karma App. The app tracks your driving behavior and provides you insights and feedback on your habits. At the end of your test drive, you’ll find out whether you qualify for an insurance discount with Progressive or Allstate.
- Liberty Mutual RightTrack — The program tracks nighttime driving, braking and acceleration.
- Metromile — The app uses a base rate and the number of miles you’ve driven to determine how much you pay for coverage each month.
- 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 and how you drive.
- 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 — for example, if you work from home. 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.
The National Association of Insurance Commissioners’ DriveCheck tool could help you get a sense of whether you might benefit from UBI.
How comfortable you are with driving-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.
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.