Laura covers what usage-based car insurance is and three facts to know that can save you money. Learn the major pros and cons and how making a change in could drive down your car insurance rate.
I received a question from Gabrielle L. who says, “I love listening to your podcasts! Can I suggest a topic on how to save money on auto insurance? Many companies have usage-based technology or apps that reward safe drivers. I think this would be a great fit for Money Girl listeners.”
Thanks for your suggestion, Gabrielle! I’ve written and talked before about auto insurance, but it’s been a few years, so it’s a great time to review the topic.
The technology behind car insurance is getting more sophisticated. However, most consumers aren’t sure how the new programs work, the potential downsides, or how much money they could potentially save.
In this post, I’ll cover what usage-based car insurance is and 3 facts you should know. You’ll learn the major pros and cons and how making a change could drive down your car insurance rate.
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What Is Usage-Based Insurance (UBI)?
The most advanced car insurance programs go by several different names, such as:
- telematics (a hybrid of telecommunications and informatics)
- pay-as-you-drive insurance
- pay-how-you-drive insurance
- mile-based insurance
- distance-based insurance
- usage-based insurance (UBI)
No matter what insurance companies call them the idea is that you can voluntarily opt to pay premiums based on collected data that shows how you drive. The safer you appear to an insurer, the less you’ll pay.
UBI programs are offered by top carriers such as Progressive, Allstate, State Farm, Nationwide, The Hartford, Liberty Mutual, GMAC, and Travelers. Some insurers can enroll consumers in all 50 states, but most companies offer UBI in fewer states.
Each insurer's UBI program is different. Some only track mileage using self-reported odometer readings, existing in-vehicle equipment, or an on-board communication system, like OnStar. The idea is that the more you drive, the more likely you are to get into an accident and file an insurance claim. So drivers who are on the road less get bigger discounts.
Other programs monitor mileage in addition to certain driving behaviors such as how fast you drive, how hard you hit the brakes, where you drive, and the times of day you drive. Data is typically tracked by a small device provided by the insurer that you plug into a port under the dashboard. You might be required to keep the device in the car for just a temporary period while your rate is set, or you may need to keep it permanently in order to be eligible for discounts.
If you stay within safe ranges set by the insurance company, you’ll qualify for lower rates. For instance, if you drive less than 10,000 miles per year, never exceed 80 mph, and rarely drive after midnight, you’ll pay less than a driver with high miles and a lead foot.