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3 Facts About Usage-Based Car Insurance That Can Save Money

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.

By
Laura Adams, MBA,
Episode #452

 

What Are the Advantages of Usage-Based Insurance (UBI)?

The major advantage of enrolling in a UBI program is that the rate you pay is influenced more by your current driving behavior and less on your personal characteristics, past driving record, and aggregated driver statistics.

With traditional auto insurance, the rates you pay are largely based on personal characteristics that you can’t change, such as your:

  • age 
  • gender 
  • marital status 
  • credit rating 
  • years of driving experience

There are a few states that prohibit or limit how insurance companies can use this information to set rates. Additionally, other factors like your driving record, ZIP code, vehicle type, previous claims, amount of coverage, and deductibles also affect your car insurance rate.

The major advantage of enrolling in a UBI program is that the rate you pay is influenced more by your current driving behavior and less on your personal characteristics, past driving record, and aggregated driver statistics.

That means UBI programs level the playing field and charge based on how you drive, rather than on factors that are partially or completely out of your control. It can make car insurance more affordable for those who typically pay the most, like young, single, males and anyone with poor credit.

UBI programs allow you to take control of your auto insurance costs by adhering to safe driving habits and reducing the miles you drive. Having a telematics device in your car also helps insurers reduce fraud by analyzing driving data like speed, time of day, and braking pressure associated with a car insurance claim.

Tracking devices can also monitor driver safety and reduce the frequency of theft by allowing stolen vehicles to be located quickly and recovered. All of these benefits allow insurers to cut costs and pass along a percentage of the savings to policyholders.

Drivers might save 40% or more off standard rates—not too shabby! These financial incentives also have wide-reaching benefits for society, like reducing accidents, diminishing congestion on highways, and cutting vehicle emissions.

See also: The Truth About Credit and Insurance Rates

What Are the Disadvantages of Usage-Based Insurance (UBI)?

All of the advantages of UBI programs sound great—so what’s the downside? Tracking driving behavior has raised privacy concerns. Many drivers don’t like the idea of having their whereabouts monitored, worry their data could be misused, or wonder if they’ll overpay for insurance if they misbehave behind the wheel.

While sharing personal information isn’t for everyone, it’s become the norm as devices such as smartphones and GPS devices have gone mainstream. The reality is that carrying a smartphone reveals much more about where you go and what you do than a telematics device in your car.

Read a study from the Center for Insurance Policy and Research, Usage-Based Insurance and Vehicle Telematics: Insurance Market and Regulatory Implications to learn more.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

 

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