UBI stands for usage-based insurance, which is a type of car insurance that uses your driving habits to help determine the policy’s premium. Insurance companies gather data for UBI directly from your vehicle’s telematics system, through a device plugged into your car’s diagnostic port, or with a smartphone app. This data helps your insurer calculate risks and figure out discounts. Drivers who qualify for these discounts usually save 10% to 15% annually.
Besides the usage-based insurance that uses your driving habits to determine rates, some car insurance companies also offer “pay-per-mile” insurance. This is a slightly different type of usage-based insurance where you are charged a base rate for coverage and a small fee for every mile you drive. Insurers track these miles using the same devices that track your driving habits for discounts, like telematics systems.
If you drive less than the average of 11,500 miles per year, you drive gently, and you’re comfortable with your insurance company monitoring your driving, usage-based insurance may be a great option for you. To learn more, check out WalletHub’s guide to usage-based insurance.
Pay-as-you-go car insurance might be worth it for people who do not drive frequently, including city-dwellers, retirees, those who work from home, seasonal workers, students and commuters. Under this type of policy, your monthly insurance rate will vary based on how much you drive. The less you drive, the more you save.… read full answer
Pay-as-you-go insurance is one form of usage-based car insurance. Companies like Metromile offer traditional pay-as-you-go insurance that’s based on the distance you drive. They normally charge a monthly base-rate plus a fee per mile driven. When you take longer trips, the insurance company will cap your miles, and you will not be charged for distances you drive above that cap.
Other usage-based programs, such as those offered by Root, Geico and Progressive, charge based on different types of driving data. These companies record driving behavior such as speeding and sudden breaking, and use it to calculate a score, which is then used to calculate your premium. Your age, the type of car you drive, and driving history are also used to calculate your rate in both types of usage-based programs.
The way insurance companies measure your driving behavior depends on the provider. Some companies will send you a small, wireless device that plugs into your car. More commonly, however, you will be asked to download an app on your phone.
Companies like Esurance suggest that a driver might be able to save up to $500 per year by selecting a pay-as-you-go or usage-based car insurance policy. So, if you are someone who doesn’t drive frequently and has a good driving record, it might be wise to consider switching to a pay-as-you-go insurance policy.
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