Usage-Based Insurance: Who Should Use It and Who Shouldn’t
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Have you been a safe driver for years, but you’ve never seen this driving behavior reflected on your auto insurance premiums? Your situation is probably more common than you think, and there’s a solution.
Usage-based insurance is a tech-forward coverage option that takes your driving habits into account when determining your insurance quotes. Find out how this modern insurance is just what you need to showcase your safe driving while reaping all the benefits of lower insurance rates.
Find Usage-Based Insurance Savings Here
Find Usage-Based Insurance Savings Here
What Is Usage-Based Insurance?
Also known as UBI, usage-based insurance is a term that refers to insurance premiums based on driving patterns or how much you drive. UBI partially breaks away from traditional factors that affect your car insurance rate, offering reduced rates for safe and low-mileage drivers.
Usage-based auto insurance breaks down into two categories:
- Driving-based insurance: Also known as pay-how-you-drive coverage, this type of UBI uses telematics through either a mobile app or a plug-in device to collect data and measure how you drive. Based on this real-time driving data, auto insurance companies can decrease your insurance coverage premiums even further.
- Mileage-based insurance: Known by many other names, including pay-as-you-go, pay-as-you-drive, and pay-per-mile insurance, mileage-based insurance is a usage-based insurance policy based solely on how much you drive. This is a great UBI program for those who drive sparingly.
How Does Usage-Based Insurance Work?
Both driving-based and mileage-based insurance products aim to reduce the cost of your auto insurance policies, albeit in different ways. But knowing how each type works can help you decide if it’s the right option for your needs.
How Does Driving-Based Insurance Work?
Usage-based insurance uses telematics data to track how you drive. While every company is different, most use a mobile app or a device that plugs into your car’s onboard diagnostic (OBD) port to obtain this information. While you’re driving, these devices take a variety of aspects into account to determine your risk as a driver:
- Phone use: The more you use your phone while you’re driving, the higher your risk.
- Braking: If you avoid abrupt or hard braking, you may see lower rates.
- Speed: Auto insurers will keep rates low for drivers who obey the speed limit.
- Cornering: Taking slower, controlled turns around curves or when turning can help you keep your rate low.
- Time of day: If you drive between 11 p.m. and 5 a.m., your rates are likely to increase, as accident rates increase at night.
Using this data, car insurance companies then determine whether you exhibit safe driving habits and decrease your premium accordingly.
How Does Mileage-Based Insurance Work?
Mileage-based insurance is a fairly easy concept to comprehend. The more you drive, the higher the risk of you being in an accident. The less you drive, the lower your risk. Due to the reduced risk of low-mileage drivers, insurance providers are more willing to offer lower rates for their customers.
Like driving-based insurance, these pay-per-mile plans use either a smartphone app or a plug-in device to keep track of your mileage. You then receive a bill at the end of the month based on the mileage you log.
Unlike driving-based insurance, mileage-based insurance ignores your driving habits—at least while you’re behind the wheel with the telematics engaged. Instead, it uses traditional factors such as your age, credit score, and driving record to determine your base rate, then adds pay-per-mile charges.
How to Decide Whether Usage-Based Insurance Is a Good Option
Usage-based insurance isn’t always the best product for everyone, so weighing both sides of the equation can help you decide whether it’s right for your coverage and pricing needs. Consider these facets before you opt in for usage-based car insurance.
When You Should Use Usage-Based Insurance
- The Federal Highway Administration states that the average driver racks up 13,476 miles per year. If you drive less than this amount, usage-based insurance could make your rates decrease.
- You practice safe and defensive driving. If you’re constantly checking your mirrors, obeying the speed limit, and practicing other safe driving habits, this coverage should provide lower premiums.
- You want to become a better driver. If you have poor driving habits, the feedback provided by usage-based insurance telematics can help you improve.
When You Shouldn’t Use Usage-Based Car Insurance
- Since you’re constantly being tracked, you need to be comfortable with it. If you’re uneasy about more companies having access to your location, this may not be the right option.
- You drive late at night. If you work a graveyard shift or have a job that requires you to drive at night—such as a bartender—late-night driving could actually end up costing you more.
- You aren’t exactly a safe driver. If you’re prone to speeding, texting, or testing the limits of your vehicle, usage-based car insurance probably isn’t the best option to decrease your car insurance premiums.
Companies That Offer Usage-Based Insurance Programs
According to credit reporting agency TransUnion, inflation drove a 33% increase in usage-based insurance in the beginning of 2022. And with 63% of drivers saying they would try such a product, more and more companies are hopping on board. Here’s a list of insurers offering usage-based insurance programs and the insurance they offer:
- Nationwide offers distance- and mileage-based UBI. SmartMiles is a pay-per-mile option and SmartRide is the telematics program. With SmartRide, policyholders can get 15% off their premium at enrollment and up to a 40% discount based on their driving habits.
- Progressive Snapshot is another type of usage-based insurance that uses either a plug-in device or mobile app to log your driving habits. Drivers save an average of $47 for signing up and $156 for successful results through Snapshot.
- The Allstate Drivewise program allows you to get discounts through usage-based statistics. It’s located conveniently within the Allstate app, and can allow you to save up to 40% on your auto insurance premiums.
- Liberty Mutual RightTrack is a usage-based insurance program that offers a small discount just for signing up. But if you exhibit safe-driving habits, Liberty Mutual will extend a 30% discount to you for as long as you’re a customer—no takebacks.
- GEICO’s DriveEasy promotes safe driving, but it’s also one of the best usage-based insurance products for feedback. Wherever you drive, DriveEasy provides tips on how to make you a better driver, as well as offering substantial discounts.
- Farmers Insurance uses its Signal app to monitor your driving habits, but it offers a bit more than some of its competitors. Signal analyzes your driving behavior and provides feedback, but if you get a driving score of 80% or higher based on the app, you’re automatically entered in a sweepstakes to win $100. It also adds in CrashAssist, which is crash-detection software that sends emergency responders if the app detects an accident.
Is Usage-Based Insurance the Right Choice for Me?
The telematics devices required to gauge your driving behavior are free in almost all cases, so there’s no reason not to give them a try. With some careful, defensive driving, you can find the savings you deserve.
Not every driver will find usage-based insurance useful in lowering their car insurance rates. If usage-based car insurance doesn’t yield lower premiums, traditional auto insurance is still an option.
When usage-based insurance isn’t the right coverage option for you, finding an affordable car insurance rate is still possible with a little help from Compare.com. It may not be usage-based, but when you’re saving money, what’s the difference? Enter your ZIP code below to gather insurance quotes that give you the coverage you need at an affordable rate.
Discover Savings from Usage-Based Insurance Providers
Discover Savings from Usage-Based Insurance Providers
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