Cars and Trucks

Usage Based Insurance: Everything You Need To Know

Calculating the cost of your auto insurance based on your driving behavior is a trending concept called usage based insurance. If you opt for this type of policy, your insurance company will collect data about how well and how often you drive through a smartphone app or plug-in device in your vehicle. You can access discounts for limited mileage and safe driving. Some insurers even give you a lower price just for opting into this type of program. Explore the benefits and potential drawbacks of usage-based auto insurance, also called a pay-per-mile, pay-as-you-go, or pay-as-you-drive policy.

How Does It Work?

According to Policy Genius, this type of insurance coverage requires a device to send driving data to your insurance provider. Sometimes, usage-based insurance works with an existing telematics system in your vehicle, such as SYNC or OnStar. In other cases, your insurer sends a device that plugs into the diagnostic port of your vehicle or requires you to download a smartphone app and keep the device in the car when you drive.

Companies who use this type of service often promise they will not use the data to increase your insurance rates. However, if you have GEICO or Progressive and choose telematics coverage, you can receive a surcharge for unsafe driving. In addition, any insurer can change your base policy price when you renew your coverage.

Some usage-based insurance plans track only your miles, not your driving behavior. These providers usually charge a base rate and a per-mile rate on top of that each month. According to Insurance Business Mag, drivers who rarely get on the road can save up to 30 percent with this type of policy since they pose a much lower risk of claims for insurance companies.

How Much Will You Save?

Wallet Hub notes that most insurance companies offer a discount of up to 10 percent when you opt to sign up for a usage-based policy. The insurer will collect data for up to six months before adjusting this introductory rate according to your driving behavior. Although some companies claim that the safest drivers save up to 50 percent on premium costs, most people save around 10 to 15 percent.

Where Can I Get Usage-Based Insurance?

Credit Karma lists these auto insurance providers that offer usage-based policies:

  • IntelliDrive from Travelers Insurance, which tracks the time of each drive, your braking, your acceleration, and your speed
  • SmartRide from Nationwide, which tracks instances of driving after dark, time spent idling in your vehicle, acceleration, hard braking instances, and the number of miles you drive
  • Drivewise from Allstate, which allows you to earn cash back based on when you drive, braking behavior, and speed
  • Drive Safe and Safe from State Farm, which uses a mobile app to track distracted driving, speeding, cornering, braking, and accelerating
  • Snapshot from Progressive, which uses a mobile app or device to track your driving behavior, time of day you tend to drive, and average mileage
  • DriveSense from Esurance, which measures significant changes in driving speed, hard braking, and number of miles traveled at high speeds
  • Metromile, which uses a base rate and per-mile rate to determine your coverage cost every month.

    Usage-based insurance allows you the opportunity to benefit from good habits if you are a safe driver. Insurance Business Mag notes that when you sign up, the company rewards you for a low risk of accidents with lower premiums and discounts.

    Wallet Hub reports that currently, 19 insurers offers usage-based car coverage in the United States, making it the second-biggest global telematics market after Europe. Led by China and India, Asia-Pacific has been named the fastest-growing telematics market in the world by Insurance Business Mag thanks to new options like AXA Malaysia’s FlexiDrive program. Canadian customers have had access to the MyPace program through CAA since 2018, while AutoNet and Vision Track currently dominate the telematics market in the UK. Australian drivers can sign up for Insurance Box through QBE. New Zealand reports that the use of telematics technology for fleets is projected to increase by nearly 80 percent in the coming years.

    Is Usage-Based Insurance Right for Me?

    Insurers in the United States have been offering this type of coverage for about a decade and currently have an estimated 8 million active telematics policies. However, the increasing popularity of usage-based insurance does not mean it’s the appropriate choice for you. Some of the benefits of usage-based auto coverage include:

    • The ability of insurance companies and first responders to address an accident as soon as it occurs, since the telematics software will sense a collision or adverse event
    • The ability to contact emergency services automatically with the push of a button and allow them to access your exact location with GPS triangulation
    • A streamlined claims process after an accident since the insurance company can gather data directly from your vehicle
    • The ability to save on coverage if you have a high risk and high costs based on age, past driving history, vehicle make and model, or geographic location

      You can often save money with this type of policy if you rarely drive or have very safe driving habits. Many telematics policies provide feedback on driving behavior, which can be helpful if you do not feel confident about your abilities or have a new driver in your household.

      If you have a history of tickets or do not feel comfortable with tracking software in your vehicle, consider a different type of auto insurance policy. If you have concerns about data tracking, make sure you know exactly what type of data your telematics insurer gathers and how they use this information before you sign on the dotted line.

      Wallet Hub reports that you may not save with a pay-per-mile policy if you travel more than an average of 11,500 miles a year. If you often drive late at night, you probably won’t save money with telematics because statistically more accidents happen at this time.

      Check this out if you need additional information, resources, or guidance on car insurance.

      Sources:

      https://www.policygenius.com/auto-insurance/what-is-usage-based-insurance/

      https://wallethub.com/edu/ci/usage-based-insurance/14118

      https://www.insurancebusinessmag.com/us/guides/what-is-usagebased-insurance-116603.aspx

      https://www.caranddriver.com/car-insurance/

      https://www.creditkarma.com/auto/i/usage-based-insurance

      https://www.caranddriver.com/research/a31875496/difference-between-make-and-model/

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