Usage-based insurance is a type of car insurance that bases the cost of a policy on how safe a driver’s habits are. Data is collected by the driver’s vehicle and analyzed by the insurer, which then uses it to determine how much of a discount the driver is eligible to receive. The better the driver, the better the discount. Some companies even offer a discount just for signing up for their usage-based programs.
Usage-based car insurance is best for those who don’t drive often or only drive safely. It might not be worth it for those who don’t practice good driving habits or aren’t comfortable being tracked.
Key Things to Know About Usage-Based Insurance
- Drivers usually save 10% to 15% annually with usage-based insurance.
- The best discounts go to safe drivers who don’t rack up a lot of mileage, though pricing factors vary between companies.
- Data is gathered directly from your vehicle’s telematics system or through a device plugged into the car’s diagnostic port.
- Most insurers will only use the data to calculate discounts and not to raise your rates.
- 11 major insurance companies offer usage-based insurance, with each emphasizing different habits such as speed, braking and acceleration.
Is Usage-Based Insurance Right For You?
The greatest discounts for usage-based insurance are given to safe drivers who drive fewer miles than the average motorist. That makes these plans ideal for some students, retirees, stay-at-home parents, and drivers who don’t commute in a car because they work from home or take public transit to work. You can reference the checklist below for more specifics.
Usage-based insurance is right for you if:
- You drive less than 11,500 miles per year. That’s how many miles the average driver logs annually, according to the Federal Highway Administration. So if you drive that much or more, you aren’t likely to save on premiums by picking a usage-based program.
- You drive gently. Many insurers track your driving style, and they will penalize you for things like braking hard or driving at high speeds.
- You don’t mind being tracked. Make sure you are comfortable with your insurance company monitoring your daily driving, which in some cases can include location data. Given that most of us carry Internet-connected cell phones with GPS location tracking, adding your car insurance company to the list of corporations that can track your movements may not be of great concern.
If you pass those tests, read on to learn the ins and outs of usage-based insurance plans.
How Usage-Based Insurance Works
To get started with usage-based insurance, you need a way to transmit data about your driving to your insurance company. You may be able to use built-in telematics systems like OnStar or SYNC. If your car doesn’t have a compatible system built in, your insurance company will provide a device that will plug into your car’s diagnostic port. Or, you might be able to use a smartphone app to track your driving habits.
As an incentive to sign up, you’ll generally start with an introductory discount of 5% - 10%. Then, after a data collection period of up to 6 months, the insurer will calculate a discount tailored to your driving that, in most cases, will be applied at the start of your next renewal period. While some insurers say a discount of up to 50% is possible, discounts for most drivers will fall somewhere in the range of 10% - 15%.
Most insurance companies promise that data collected about your driving will be used only for discounts, not to increase your premiums. Progressive is the exception to this rule: It is possible to get a surcharge instead of a discount with their Snapshot insurance plan. Also be aware that, as with any auto insurance policy, your base premium may increase each time your policy is renewed, diluting the value of your discount.
To help you save and to encourage safety behind the wheel, most programs provide feedback on your driving. If you use this information to improve your habits, you can save even more. Some examples of available tools are:
- Some Progressive Snapshot devices will beep to notify you when you’re braking hard enough to be penalized.
- Smartphone apps from Allstate Drivewise and Metromile analyze driving habits and display reports after every trip.
- In almost all cases, you can log into the insurance company’s website to see how your driving is affecting your insurance premiums.
The details of each program ultimately vary pretty widely, though. Each insurer emphasizes different behaviors as they apply discounts.
Emphasis on low mileage. Travelers and National General only track miles driven, and discounts are purely based on how many miles you log.
Emphasis on safe driving. Allstate Drivewise does not offer low-mileage discounts. They just want to see that you avoid unsafe behavior, such as hard braking, high-speed driving and using your car during late-night hours.
One-time scoring of driving habits. Nationwide only tracks your driving for an initial period to score your driving habits. You then send the tracking device back, and any discount will be applied for as long as you keep your Nationwide auto coverage.
Safeco’s Rewind offering works similarly. It’s an accident forgiveness program that gives you a 4-month opportunity to prove that your driving habits are safer than your driving record would indicate.
“Pay as you drive.” Metromile puts you in direct control of how much insurance you buy each month. Their policies start with a low base insurance rate, and when you use your car, you’re charged an additional fee for every mile driven.
There are currently 11 major insurance companies offering some form of usage-based insurance (including Safeco, which has two options). You can see details on each of their offerings in the table below. Keep in mind that not all of these programs are available in all states.
Where to Get Usage-Based Insurance
| Insurance Program | Factors for Calculating Pricing | Additional Considerations | Availability |
|---|---|---|---|
| Allstate Drivewise | - Speed - Time of Day - Braking | Instead of discounted premiums, drivers get rebates every six months based on driving behavior Can use smartphone app instead of device connected to car’s diagnostic port | All states except CA |
| Esurance Drivesense | - Miles driven - Speed - Time of day - Braking | Initial discount of 5% | 35 states |
| The Hartford TrueLane | - Time of Day - Speeding - Acceleration - Braking | Initial discount of 10% discount; maximum discount of 25% | All states except AK, CA, MA, HI, LA, MT, NC and RI |
| Metromile | - Miles driven | Driver pays a monthly base rate (from $29) plus a per-mile charge Per-mile costs are charged only for the first 250 miles/day (150 miles/day in NJ) | AZ, CA, IL, NJ, OR, PA, VA and WA |
| National General Low-Mileage Discount | - Miles driven | Only offered to OnStar subscribers Must drive less than 15,000 miles/year | 35 states |
| Nationwide SmartRide | - Miles driven - Nighttime driving - Acceleration - Braking - Idle Time | Initial discount of 10%; maximum discount of 40% Data only tracked for 4-to-6-month evaluation period | 43 states |
| Progressive Snapshot | - Miles driven - Hard braking - Driving between midnight and 4 a.m. | In some states there is no initial discount until after 30 days of data collection. After 75 days of data collection, premium is calculated for next renewal period. Customer might be assessed a surcharge instead of a discount | All states except CA and NC |
| Root Insurance | - Focused driving - Braking - Turning - Time of Day | Mobile app measures driving metrics for several weeks prior to providing initial quote | 30 states |
| Safeco Low Mileage Discount | - Miles driven | Must drive less than 8,000 miles per year No device needed; driver periodically reports odometer reading to Safeco | All states |
| Safeco RightTrack | - Miles driven - Braking - Acceleration - Time of day | After 90 days of data collection, the discount will be applied Maximum discount of 30% | 42 states |
| State Farm Drive Safe & Save | - Miles driven - Acceleration - Braking - Turns - Speed - Distracted driving | Initial discount of 5%; maximum discount of 50% Data tracked for 4-to-6-month evaluation period before each renewal | All states except CA, MA and RI Mobile app not available in NY |
| Travelers Intellidrive | - Time of Day - Speed - Acceleration - Braking - Distraction | Initial discount of 10%; maximum discount of 30% Must drive less than 13,000 miles/year | 37 states and D.C. |
Information up to date as of October 2020
Ask The Experts: Privacy Issues And Usage-Based Insurance
Allowing your auto insurer to track your driving habits raises privacy and security issues that most driver don’t need to concern themselves with. To get a better understanding of how consumers can protect themselves, we ask a panel of industry experts for their insights.
- Are there any laws that restrict how insurance companies use data that they collect from usage-based insurance devices? Should there be?
- Are insurance companies required to notify their customers if their policies for using this data change?
- Under what circumstances can an insurer be compelled to provide telematics data to the courts or to government agencies?
Ask the Experts
- Max N. Helveston
Associate Professor of Law at DePaul University College of Law
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- Patricia H. Born
Payne H. and Charlotte Hodges Midyette Eminent Scholar in Risk Management & Insurance and Director of the Center for Insurance Research at Florida State University
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- Judith Wright
Clinical Assistant Professor of Business Law in the Kelley School of Business at Indiana University
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