What is usage-based insurance?
Usage-based insurance (UBI), also called “telematics,” is when an auto insurer monitors and tracks your driving behavior through a device installed in your vehicle or through a smartphone application. These wireless devices transmit data in real time back to insurers, such as:
- Number of miles you drive
- Time of day
- Where you drive the vehicle
- If you rapidly accelerate, rapidly decelerate and/or take corners hard
- Your air bag deploys
How do auto insurers determine usage-based insurance premiums?
Insurers use the data they collect from the wireless device to help determine your customized insurance premium. To come up with how much you’ll pay in premiums, your insurer may combine the data with traditional factors typically used by the auto insurance industry.
If you drive shorter distances at slower speeds in the daytime, for example, you’ll probably be charged less than someone who drives longer distances at night and rapidly accelerates when taking hard corners. UBI associates costs with individual and current driving behaviors, which may help you break away from traditional auto insurance factors that influence how much you'll pay in premiums.
The downside of usage-based insurance
Insurers tracking your driving behavior may raise some privacy concerns. You might be uncomfortable sharing your location and driving behavior with an insurer.
UBI is a fairly new technology, and insurers are still developing how they’ll use the raw data they collect to price auto policies. While you can expect a lower premium if your driving behavior aligns with what the insurance company decides is lower risk, not all drivers will meet the company's standards needed for a discount.
The advantages of usage-based insurance
Linking insurance premiums to your driving performance allows insurers to price premiums more accurately. Your premiums may go up or down depending on your driving behavior. Low-risk drivers receive lower premiums.
Is usage-based insurance right for you?
Only you can decide if the potential for lower premiums is worth the trade-off to allow your insurer to track your driving habits. Before you decide, ask yourself the following questions:
- Do I trust my insurer with my information?
- Do I think my driving behavior will help my premiums? If not, am I willing to alter my driving behavior for a discount?
- What are my potential savings if I let my insurer monitor my driving behavior?
- What exactly will my insurer monitor?
- Will my insurer allow me to decide whether information from a UBI device is used after an accident to settle a claim?