If you’re an excellent driver with a stellar driving record, cash in on the rewards.
Usage-based insurance (UBI) is coverage offered by some auto insurers that considers your driving skills and habits. Under this program, insurers can track your driving in exchange for lower insurance rates and discounts.
UBI isn’t for everyone. But it might be worthwhile if you want to gain rewards for your safe driving habits.
In today’s post, we’ll explore usage-based insurance—how it works, the types available, and if it’s worth the effort.
I | What is usage-based insurance (UBI)?
Safe drivers can benefit from lower premiums with UBI programs that allow them to pay-how-you-drive.
It is a newer type of auto insurance that adds two additional factors traditional auto insurance doesn’t include when calculating your auto insurance premium:
- How many miles do you drive;
- Your driving habits and if you are a safe driver.
Since its introduction over a decade ago, more and more insurance companies are adopting pay-as-you-drive (PAYD) policies. The advantages to insurers, drivers, and the wider community make it an attractive alternative to traditional auto insurance.
The benefits for insurers
- Increased accuracy of premium pricing.
- Increased accuracy estimates for accident damages.
- Reduction in insurance claims fraud with driving data collected during an accident.
- Refinement of UBI products for added competition in the market.
- Streamlined accident investigations.
- Fewer claims as the perks motivate driver safety.
The benefits for drivers
- Drivers gain more control over their insurance costs.
- Affordable insurance for low-income drivers.
- Mileage and driving behavior count. Suppose your commute covers short distances and you stick with the speed limit. You can qualify for a lower premium with UBI than with traditional insurance.
- Lower the incidents of vehicular theft and sped-up stolen vehicle recovery.
- Ready proof for fair claim settlements.
- The approval process focuses less on non-driving related factors like education and occupation with the collection of real-time driving data for consideration.
Public safety benefits
- Motivating the reduction of driven miles and adopting safer driving habits can reduce traffic accidents, air pollution from vehicle emissions, and congestion on our roads.
UBI takes advantage of the accelerations in technology. These advancements help in improving how insurers do business. They also open new avenues for eligible drivers to take more control over how they pay for their car insurance while reaping the rewards.
II | How does a UBI program work?
With usage-based insurance, insurers track your mileage or driving behavior (sometimes both) with a telematics device. Data collection occurs as you drive, and the device sends the information to your insurance carrier.
Approved tracking modes include an insurer-issued smartphone app, built-in telematics systems installed by your vehicle’s manufacturer, or a self-installed plug-in device.
Data collected include:
- How you drive
- Mileage
- The time of day you drive
- Driving speed and if there are any sudden changes
- Hard breaks and accelerations
- How you take corners
- Distracted driving and if you use a phone while you drive
The combination of the above information, plus the addition of others, depends on the company and the features offered in the plan you choose. The weight each factor carries on your final driver score varies by insurer.
After analyzing the information for every policy period, the insurer will determine the discount and monthly base rate. If the data shows you’ve become a safer driver since the last time you renewed your policy, you may save hundreds of dollars.
III | Types of Usage-Based Programs
Usage-based insurance plans come in two forms.
1. Pay-per-mile or pay-as-you-drive
This plan tracks the miles you drive during a given policy period. The less you drive, the lower your rate.
Under this program, insurers often charge a monthly base rate and a per-mile charge. Details will vary by state, and so will availability.
2. Pay-how-you-drive or behavior-based
This plan tracks your safety record throughout the policy. Lower-risk drivers will receive cheaper rates than those deemed higher risk.
During the collection period for your plan, starting from the day you sign until the next renewal period, the insurer will gather specific data on your driving behavior. This information will establish your habits and determine the discounts you qualify for.
You may also receive a 5 – 10% initial discount upon signing up.
Most insurers don’t use the data collected to raise your premiums, but some might.
IV | Is applying for a usage-based program worth it?
How much you save with UBI depends on your program features, safe driving habits, and the company you sign with. Overall, savings range from 10 to 30%. It’s not for everyone, and some programs hike up your premium for bad driving habits.
A UBI program might be worth it if:
- You work from home and don’t drive often
- You stick within a limited geographical range
- Your driving record is spotless or close
- There are previous accident claims on your record that often lead to an increase in premiums under a traditional policy
It’s a matter of assessing the pros and cons and the features of the programs offered by each provider. Speak with an agent and learn how UBI would benefit you.
Opting out of a program
Ask about the consequences of leaving the program you sign up for. With some companies, you may need to stay in the program for a specific period before opting out. Once you leave, you may or may not lose the discount you earned. Keeping the discount, however, will entail you remaining insured with the company. Again, the stipulations vary, and it’s up to you to gather all the facts.
V | Privacy Concerns
Privacy issues always crop up with accessing someone’s personal information. Few of us read the terms and conditions when we sign up for websites, link various accounts on our cell phones, or when we install software on our computers. Read and understand all the fine prints with UBI and ask questions.
Telematic devices are always on. Which means they are constantly collecting information. If you turn off your device, your insurer might disqualify you from discounts.
Your personal information
Though insurers promise they hold their client’s gathered information in the strictest confidence, doubts remain among consumers. Not everyone’s on board with auto insurance companies tracking their movements. This is one of the issues that make UBI unattractive to potential customers.
There are still calls from organizations like the Consumer Federation of America (CFA) for greater transparency. Although the CFA acknowledges the advantages of UBI for insurers and drivers alike, more still needs to be done about stricter consumer protection and privacy.
Cybersecurity concerns
Cybersecurity is another concern for some consumers and the ability of hackers to access their car’s data. The more wirelessly connected we become, the higher the chances of outsiders gaining unauthorized access.
Insurers implement safety measures to secure your information and your vehicle. Speak with your insurance agent about the company’s controls to ensure you and your data remain secure.
Conclusion
If you’re willing to prove you’re a safe driver by allowing your insurer to track your driving, look into usage-based auto insurance. Not all insurance carriers offer the leverage of using your driving behavior for savings.
- Make sure you understand the rules of the UBI program you choose. Note the driving behaviors being monitored and how infractions will affect your premium.
- Learn how to use the tracking app provided so it records accurate data. If you are a passenger in a vehicle, you don’t want someone else’s driving habits messing up your driving scores.
- Find out how you can leave the program if you decide it’s not working out for you. Some companies will allow you to keep the discount you earned as long as you remain insured with the company under another auto insurance policy.
