Usage Based Insurance

What is usage-based insurance?

Usage-based insurance (UBI) aims to match the cost of your vehicle coverage with your driving patterns. Car insurers have historically utilized criteria such as your age, location, and motor vehicle report to determine your risk of an accident and the cost of your premium. New technology has created the ability to have usage-based insurance where a device (a car plug-in device or mobile app) compute your auto insurance premium by evaluating how frequently and how safely you drive. Many vehicle insurers provide optional UBI programs, which may provide you an upfront discount and additional savings your insurer utilizes the data to more accurately price your insurance.

What is usage-based vehicle insurance and how does it work?

For several months, your driving behavior is generally tracked via a plug-in device or a mobile app. When your UBI program is completed, your insurance provider will use the data to calculate your rate. The criteria used for rating and the savings will differ depending on the insurance company but amount of driving, acceleration and hard braking are often factors. While the findings of your UBI program may result in a significant reduction in your rate, with certain companies it is possible that your policy's premium may increase.

Usage-based applications are classified into two types:

  • Driving patterns are assessed based on criteria such as how hard and frequently you brake, how rapidly you accelerate, and the time of day you drive.
     

  • Mileage-based: Your insurance only counts the number of miles you drive.

Both solutions rely on telematics to collect data about your driving habits. Telematics allows data to be transmitted from moving vehicles and shared with an information center. Whether your usage-based program requires on-board diagnostics (a device plugged into your vehicle) or a mobile app downloaded to your smartphone, telematics is used by your insurer to collect information about your driving habits, such as hard braking, rapid acceleration, speed, distracted driving, and how quickly you take turns on the road.

The Advantages of Usage-Based Insurance

Usage-based programs have grown in popularity as they use technology to assist vehicle insurance in more precisely calculating your risk of an accident. The benefits include:

  • Premium discounts: Enrolling in a UBI program can result in both an immediate discount and long-term savings. Your insurer's data demonstrating you're a safe driver corresponds to a cheaper auto insurance cost.
     

  • Safer driving: When drivers are aware that they are being watched, they are more likely to drive cautiously, resulting in fewer accidents and infractions.
     

  • Improved habits: If you struggle to brake softly or take turns too quickly, usage-based systems may give analysis to assist you in identifying methods to improve your driving skills.
     

  • Accidents benefit from tracking: Investigators may find it simpler to investigate an accident if they know the speed and direction of the vehicle(s) involved.

While many drivers save from UBI, not all drivers will benefit from usage-based programs. If you accelerate quickly or repeatedly slam on the brakes, your insurance may boost the cost of your coverage. Keep in mind that the plug-in device or app cannot detect when you are driving defensively, such as braking quickly and swerving to avoid striking an animal or person.

How do I save with a UBI program 

Insurance company programs vary, so it's important understand the details of your policy. But some suggestions include:

  • Reduce your driving: If you have a long road trip or vacation planned that will require a lot of driving, you should avoid using a usage-based service. Choose a time period when you know you'll be driving as little as possible.
     

  • Avoid driving after midnight: Between 12 a.m. and 4 a.m., accidents are all too prevalent. If your device or app detects excessive driving during this time period, particularly on weekends, the cost of your coverage may rise.
     

  • Examine UBI feedback: If your software offers feedback on your driving behaviors, utilize it to develop as a driver.
     

  • Don't drive distracted: Avoid multitasking, eating, and using your cell phone while driving.

Mileage-based insurance vs. usage-based insurance

A few smaller insurers in certain states may provide "pay-per-mile automobile insurance." That is, the cost of your insurance is solely determined by the number of miles you travel. Pay-per-mile policies may be costly, even if your daily commute is short, because the miles soon mount up. Participating in a habit-based UBI program may be more advantageous than pay-per-mile auto insurance if you are an infrequent driver looking for a lower premium.