Usage-Based Insurance: Who Should Use It and Who Shouldn’t

If you consider yourself a safe driver or you drive fewer than 10,000 miles each year, UBI may be worth considering.

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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.

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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?

man in a car driving

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 companies 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.

Companies That Offer Usage-Based Insurance Programs

More companies are offering usage-based insurance programs, but every company’s program details and offerings vary by state. For example, Farmers’ Signal program isn’t available in Florida, Hawaii, New York, and South Carolina. And though the program is available in California, residents don’t receive a discount.

Here are 10 car insurance companies with UBI programs, along with the initial discount you can receive when you sign up and each program’s maximum discount.

Program Initial Discount Maximum Discount
Allstate Drivewise Varies by state Varies by state
American Family KnowYourDrive 10% 20%
Chubb SafeLane 10% 20%
Farmers Signal 5% 15%
Liberty Mutual RightTrack 10% 30%
Nationwide SmartRide 10% 40%
Progressive Snapshot Varies by state
Average discount of $94
Varies by state
Average discount of $231
Safeco RightTrack 10% 30%
State Farm Drive Safe & Save 5% 30% (May exceed 30% in some states)
The Hartford TrueLane 12% 25%
Travelers IntelliDrive 10% 30% (Up to 40% in Nevada)

Is usage-based insurance right for you?

The telematics devices used to track your driving are free in almost all cases, so there’s no reason not to give UBI a try. But not every driver will find usage-based insurance useful in lowering their car insurance rates. Traditional auto insurance is still an option if usage-based car insurance doesn’t yield lower premiums.

To determine if usage-based insurance is right for you, weigh both sides to see if it matches your coverage and pricing needs. Consider the following before switching to usage-based car insurance.

When You Should Use Usage-Based Insurance

Young woman driving a car

  • 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.

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Usage-Based Insurance FAQs

We answered the most frequently asked questions about usage-based insurance below.

What is the difference between pay-per-mile insurance and usage-based insurance?

Usage-based insurance tracks your mileage and driving behaviors and adjusts your rates based on how you drive and how much you drive. Pay-per-mile insurance is a type of UBI where your rates are based only on how many miles you drive.

Will your rates increase if you get usage-based insurance?

It’s possible. UBI programs vary by insurer. Some insurers may increase your rates if the data gathered about your driving habits indicates unsafe driving behavior (i.e., driving after midnight, speeding, etc.). 

Some insurers may also increase your rates based on how many miles you drive — basically, the more you drive, the more you pay. Others won’t increase your rates regardless of your driving behavior.

How does pay-as-you-go insurance work?

Pay-as-you-go insurance is a mileage-based insurance program that tracks how many miles you drive through a mobile app or a device you plug into your vehicle. Rates vary by insurance company, but typically, companies charge a base rate and per-mile rate.

Some auto insurers, such as Hugo Insurance, may not track mileage, offer short-term coverage, and allow you to turn coverage off and on. In short, the less you drive, the less you pay.


  1. NSC Injury Facts, “Crashes by Time of Day and Day of Week,” Accessed February 2, 2024.
  2. Federal Highway Administration, “Average Annual Miles per Driver by Age Group,” February 2, 2024.
  3. TransUnion, “Inflation Report,” February 2, 2024. 
  4. Business Wire, “Report: 63% of U.S. Drivers Would Consider a Change to UBI,” February 2, 2024.

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