If you’re in the market for auto insurance, you may have come across usage-based auto insurance and wondered how it compares to other types of auto insurance.
What is usage-based car insurance?
Usage-based car insurance, sometimes abbreviated as UBI, calculates the price you pay for auto insurance based on how you actually use your car. The policies are generally opt-in, although there are some insurance companies such as Metromile that specialize entirely in usage-based auto insurance.
Drivers may want to choose a usage-based insurance company to save on auto insurance.
Usage-based insurance typically favors drivers who don’t get on the road often, as well as people who drive carefully or safely. Because your insurance company can consider how you drive, usage-based insurance can be fairer for drivers. Many traditional auto insurance companies use factors such as age, gender, and even credit history in some states, without considering how you drive in real-time, which might not accurately represent whether you are a risky driver.
What factors does usage-based insurance consider?
As the name suggests, usage-based insurance considers how you use your vehicle. The most common types of usage-based insurance pay-as-you-go, pay-as-you-drive, and pay-per-mile insurance all consider the number of miles you drive. If you drive less often or stop driving, you can lower your costs for auto insurance.
Some other usage-based insurance also looks at how you drive to determine if you are a risky or safe driver. Risk factors often considered include speed, acceleration, braking, and even when you drive. All of these factors can indicate more risk. For example, an insurance company might consider you a risky driver if you drive at high speeds or often drive at night when the visibility is lower. Some telematics devices and technology can also assess whether you’re using your phone while driving or how you maneuver your vehicle on the road.
Usage-based insurance gives drivers control over their rates by focusing on factors they can influence. The factors considered can make for auto insurance that is more driver-focused.
In contrast, traditional auto insurance companies often don’t consider these factors when determining your rates. They may also use factors like gender or use your credit score to assess risk, which can be unfair. For example, states like California, Hawaii, Massachusetts, and Washington state have plans to disallow or don’t currently allow insurance companies to use credit history when setting the cost of car insurance.
Who is usage-based insurance a fit for?
Usage-based auto insurance is ideal for people who don’t drive that often or too far. The pay-as-you-go model can help you avoid pricey car insurance bills. Chances are usage-based insurance is a fit for you: 65 percent of drivers with traditional auto insurance may be overpaying for their coverage because they’re low-mileage drivers.
Aside from low-mileage drivers, usage-based insurance is also a good fit for safe or careful drivers. With usage-based insurance, it’s easy for insurance companies to gauge how safely you drive and set an appropriate rate for you or offer discounts on car insurance.
How does usage-based insurance work?
Many usage-based insurance companies use technology, including telematics devices, to understand your vehicle’s movement, speed, and how far or how often you drive. You’ll generally need to connect a device to your car’s onboard diagnostic port (OBD-II port). However, you might be able to use your insurance company’s smartphone app or your car manufacturer’s online account if you drive a connected vehicle.
Metromile provides drivers with a Pulse device that securely and accurately counts the miles they drive. The Pulse device also offers other benefits, including automated claims and free tools to help you find your car, plan your trip, look up fuel costs, and even get street-sweeping reminders in select cities directly from your mobile phone.
Some usage-based insurance companies may have similar devices or use a smartphone app to monitor your driving.
Some usage-based insurance policies might charge for insurance after each trip you drive. Metromile takes a different approach. Metromile auto insurance policies have six-month terms, and you’ll keep the same per-mile rate for the entire term.
In some states, Metromile also considers how you drive, and unlike some other usage-based insurance, doesn’t consider individual trips or instances of speeding, hard braking, or cornering. Instead, how you drive over time is considered more important and used to determine your rate when you renew your policy. This also means you could earn a lower rate when you renew or sign up after your Ride Along™ trial.
Privacy concerns for usage-based insurance
When you have a usage-based insurance policy, you agree to let your insurance company monitor how you drive. It’s important to understand how your usage-based insurance company will use any data.
There’s some good news if you’re interested in usage-based car insurance and concerned about your privacy: Metromile allows drivers to disable their location services without affecting the price they pay for their auto insurance coverage.
Discounts available for usage-based insurance
If you opt for usage-based car insurance, you may be able to score some serious savings. On average, Metromile customers save 47 percent a year compared to what they were paying previously with traditional auto insurance, according to a 2018 survey of Metromile customers who saved. And it started by switching to pay-per-mile auto insurance.
Metromile customers save on car insurance when they drive less.
The bottom line
If you’re ready for a change or looking for a new way to save, you might want to look into usage-based insurance. Safe drivers and people who don’t drive a lot can save with Metromile and its usage-based auto insurance coverage.
If you’re not sure if usage-based insurance or pay-as-you-go auto insurance is right for you, you can take a free trial before you buy with Metromile and Ride Along.
Download the Metromile app and get a free auto insurance quote with Ride Along. You’ll then drive as you typically would for about two weeks (you should keep your current insurance policy to keep coverage during your trial). Once your trial period is complete, you can save up to an extra 40% off your auto insurance quote, depending on your state, for demonstrating safe driving habits during your Ride Along.
Melanie Lockert is a freelance writer, podcast host of the Mental Health and Wealth show, and author of Dear Debt. She’s a cat mom to two jazzy cats, Miles and Thelonious, an amateur boxer, music lover, and needs coffee to function.