How Usage-Based Car Insurance Works
- Most usage-based car insurance offers discounts based on your good driving habits.
- Insurers also have usage-based car insurance based on how much you drive.
- A tracking device or smartphone app may be used to monitor your driving.
What is usage-based car insurance?
With usage-based car insurance (UBI), you pay for what you use. If you show your insurance company that you are a safe driver, or that you don’t drive a lot, you can get a large discount.
How much you save with a usage-based car insurance policy varies, but some major car insurance companies have UBI programs that can save you up to 40% or more on your rate.
With UBI, instead of relying primarily on demographic factors (your age, where you live and what kind of car you drive), your rate is based on your personal driving habits.
To monitor your driving, car insurance companies have different tracking devices and systems. Usually your insurer will use a built-in or plug-in tracking device, but others rely on GPS receivers or smartphone apps. In some cases, the insurer will give you a choice of devices.
Types of usage-based car insurance
Usage-based car insurance falls into two categories: driving-based or mileage-based.
Pay how you drive
A “pay how you drive” insurance policy — also called “driving-based insurance” — looks at how safe your driving habits are. Factors used to judge this usually include:
- Speed
- Acceleration
- Brake patterns
- Phone use while driving
- Drive time during higher-risk periods, such as commute hours
Your insurer tracks these factors for a set period of time. Once your policy renewal period arrives, you will receive a set discount based on how safely you drive.
Pay per mile
Pay per mile car insurance — also known as “pay as you drive” (PAYD) — calculates your discount based how much driving you do.
Car insurance companies that offer pay per mile will have set mileage limits for you to choose from. If you stay within your chosen mile limit, you get a discount.
Do I need usage-based car insurance?
UBI may be a good investment if you:
- Have a clean driving history. If you have a track record of good driving practices, UBI can be a benefit.
- Don’t drive a lot. If you work from home, are retired, or just aren’t behind the wheel a lot, usage-based car insurance may save you money.
- Use rental cars frequently. If you primarily use rental cars, usage-based insurance may be a cheaper option than relying on the rental company’s insurance.
Companies that offer usage-based car insurance
Many car insurance companies have programs that offer usage-based car insurance, and some even specialize in it.
Allstate
Allstate’s Drivewise program offers pay-how-you-drive car insurance with a hefty discount. After you sign up, Allstate asks you to make at least 50 driving trips before your renewal date and then uses the data to determine the discount you get.
According to Allstate, you can save up to 40% on your car insurance with Drivewise.
Liberty Mutual
Liberty Mutual’s UBI program is called RightTrack. Liberty Mutual requires that you (and anyone else on the policy) download a smartphone app and uses it to calculate a score based on 90 days of driving.
It will then offer you a discount either at the end of the 90-day period or at policy renewal time, depending on the state you live in.
According to the RightTrack site, you save 10% just for enrolling, and once the program is completed, you could cut 30% off your car insurance premium.
Metromile
Owned by Lemonade, Metromile sells only pay-per-mile car insurance. They’ll calculate your first month’s rate based on factors such as your age, your vehicle and your credit history. At the end of the month you are charged that same base rate, plus your per-mile rate.
Metromile tracks mileage through its Pulse device, which plugs into your car’s diagnostic port. The Pulse will also give you data on your car’s performance, trip mileage and fuel usage. If there’s an issue with the engine, exhaust or another system in your car, Pulse will notify you.
According to Metromile, customers save an average of 47% compared to their previous car insurance company.
Nationwide
Nationwide has its SmartRide program, which tracks both your mileage and your driving habits to figure out your discount. Using a smartphone app, SmartRide monitors your hard braking, acceleration, idle time and nighttime driving habits, as well as how much you drive.
SmartRide calculates your discount on a weekly basis. At the program’s end, usually after four to six months, you get a final discount, applied when you renew your policy. You get 10% off your premium just for applying to RightTrack, and you can save up to 40% at renewal time.
Progressive
Progressive offers a UBI program called Snapshot, based on your driving habits and how much you drive. You can choose how your data is gathered: either by a device plugged-in to your car or through a smartphone app.
The Snapshot app lets you track your progress with the program. At your renewal time, Progressive emails you your final discount and applies it to your renewal rate.
Progressive says Snapshot users save an average of $156 a year (excluding Alaska and Hawaii).
State Farm
State Farm has a Drive Safe & Save program that tracks your mileage and driving habits through a combination of a smartphone app and bluetooth beacon.
Drive Safe & Save compiles your data — usually every six months — and applies your discount at renewal time. Your discount can increase or decrease each renewal.
You receive a 10% discount just for applying to the program, and can get up to a 30% discount at policy renewal time.
In addition to the insurers above, have a look at others from our list of best car insurance companies to see if any have an even better deal.