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.

Laura Adams, MBA
7-minute read
Episode #452

3 Usage-Based Insurance Facts That Can Save You Money

If you're willing to give up information about your driving behavior, it can certainly cut the cost of auto insurance. 

If you're willing to give up information about your driving behavior, it can certainly cut the cost of auto insurance. Here are 3 facts to help you understand if it's worth switching from a traditional policy to a UBI program:

Fact #1: Poor driving won’t cause your rate to rise

One of the most common concerns consumers raise about enrolling in a UBI program is having to pay more if they don’t drive perfectly. Most insurers claim that rates won’t go up if you’re not the best driver—you simply won’t get a safe driver discount.

The only situation where you might see a rate increase is if you claim to be a low-mileage driver, but then log miles over that amount annually. So be sure to estimate your mileage as closely as possible.

Fact #2: You can still speed (within reason)

As I previously mentioned, some UBI programs don’t monitor vehicle speed as a factor in giving you a discount. But even those that do, such as Allstate’s Drivewise program, only ding you for driving over 80 mph.

None of the programs compare how fast you’re driving against the posted speed limits. For instance, you don’t lose a discount for driving 65 mph in a 55 mph zone. Insurers simply calculate the percentage of miles you log at excessive speeds.

And if you do slip up and exceed the insurance company’s recommended limit, remember that your rate won’t go up—you may just get a smaller discount.

Fact #3: Getting a full discount may take time

Different insurance companies handle UBI discounts differently. Some may offer a small signup incentive, such as a 10% discount, and then apply the full savings at renewal time, which is usually every 6 months.

Progressive’s Snapshot program lets you sign up for a 30-day trial where you install their telematics device. After logging 30 driving days, you get an estimate for how much you can save and the discount is applied to your premium. After 6 months with the device, your permanent discount is applied and you return the device to Progressive. Allstate’s Drivewise program continues to provide discounts to safe drivers as long as you keep their device permanently installed in your vehicle.

How Much Is a Usage-Based Insurance Discount?

You’re probably wondering how much a typical UBI program could save you. State Farm’s Drive Safe & Save program is available to policyholders with an onboard communication system (like OnStar, In-Drive, or SYNC) or using a mobile app on your smartphone. They say you can save up to 50%.

GMAC Insurance offers a usage-based program that’s offered to OnStar subscribers. Their Low-Mileage Discount rewards policyholders who drive less than 15,000 miles per year with a discount of up to 54% based on the number of miles driven. It doesn’t factor in any other driving behaviors besides mileage.

Despite privacy concerns, the market for pay-as-you-drive insurance programs is starting to heat up. Insurers like getting data that helps them filter out and reward low-risk customers. And consumers love having more ways to get personalized discounts, cut their insurance costs, and keep more of their hard-earned money.

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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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