Understanding Usage-Based Auto Insurance: Is It Right for You?

If you’re looking for ways to save money on your car insurance, you may come across an option called usage-based auto insurance (UBI). This type of policy calculates your rate based on your driving habits, meaning safe drivers can often unlock discounts they wouldn’t receive through traditional auto insurance.

But what exactly is UBI, and how does it work? What are the risks? Buckle up—we’ll answer all your questions and more.

What Is Usage-Based Auto Insurance?

At its core, usage-based insurance means the better you drive, the less you pay. When you enroll in a UBI policy, your insurance company tracks your driving behavior over a specific period (typically four to six months). Based on that data, you may qualify for a lower premium.

There are two main types of UBI:

• Driving-based UBI, which tracks:
  • Speed
  • Acceleration
  • Hard braking
  • Sharp cornering
  • Miles driven
  • Time of day you drive
  • Phone use while driving
  • Weather conditions
  • Road conditions
• Mileage-based UBI, which only measures the number of miles you drive.

While UBI focuses on real-time driving data, insurers still consider traditional factors like your driving record, credit score, vehicle type, location, and age.

How Does Usage-Based Insurance Work?

UBI policies rely on telematics—technology that collects and transmits data while you drive. This can happen in a few ways:

• A mobile app installed on your smartphone
• A device plugged into your vehicle’s OBD-II port
• Built-in systems such as OnStar

This data is shared with your insurance provider to evaluate your driving behavior.

How Much Can You Save with UBI?

On average, UBI users save about 10% on their premiums. But with consistently safe driving and depending on your insurance provider, savings can reach 30% to 40%.

UBI isn’t just for personal vehicles—commercial vehicle owners can also benefit. Fleet telematics can help reduce premiums across multiple vehicles.

That said, UBI doesn’t guarantee savings. If you frequently drive at night, log high mileage, or exhibit risky driving behavior, your premium may increase. A 2022 report found that over 40% of customers saw rate hikes after switching to UBI.

UBI isn’t a decision to take lightly—so let’s weigh the pros and cons.

Benefits of Usage-Based Auto Insurance

If you’re a safe driver, UBI can offer several advantages:

• Lower Premiums: You could save money with both participation and performance-based discounts. Your premium becomes more accurately aligned with how you actually drive.
• Improved Driving Habits: Many drivers become more mindful once enrolled in a telematics program. In one report, 45% of participants said they made significant safety improvements, while 35% reported minor changes.
• Accident Support: Telematics data can help clarify what happened in a crash, potentially speeding up the claims process. Some systems can even alert emergency responders if an accident occurs.

Downsides of Usage-Based Auto Insurance

Despite its benefits, UBI isn’t for everyone. Some drawbacks to consider:

• Potential for Higher Rates: Not all policies are discount-only. Some may raise your premium if your driving data reflects risky behavior. Always ask your provider how they use telematics data.
• Timing Matters: Planning a road trip or anticipating a busy driving season? You might want to delay enrolling in UBI until you’re driving less.
• Night Driving Penalties: If you work overnight shifts, you could be penalized for driving during high-risk hours, even if you’re a safe driver.
• Mileage-Based Pitfalls: Even moderate driving can add up quickly. Unless you truly drive infrequently, a mileage-based policy may not be cost-effective.
• Privacy Concerns: UBI programs track when, where, and how you drive. If privacy is a concern, ask how your data is stored, used, and protected.
• App Accuracy: If you’re riding as a passenger, your app might mistakenly log that trip as your own. Make sure to adjust your app settings to avoid being penalized for someone else’s driving.

Is UBI Right for You?

Usage-based insurance can be a smart way to save money and improve your driving—but it’s not ideal for everyone. If you’re curious about whether it fits your lifestyle and habits, talk to an agent at C&S Insurance. We’ll help you review your options and find a policy that works for you.