Usage based insurance (UBI) is a relatively new form of auto insurance coverage that bases your premiums on your driving behavior. In many cases, drivers receive discounts that may significantly lower the cost of their insurance.
Is usage based auto insurance right for you? Here’s what you need to know.
What is Usage Based Insurance?
UBI policies use telematics – data collected using GPS, cellular data, and other technology – to determine your driving behavior. The data collected determines what your auto insurance premiums will be.
Usage based auto insurance can collect all kinds of information when you’re behind the wheel:
- Harsh braking
- Miles driven
- Time of day you’re driving
- Phone use while driving
The behaviors tracked and data collected depends on the type of UBI device used. There are multiple devices available, depending on the insurance provider you select:
- Device installed on the windshield or rear window that connects via Bluetooth
- Device plugged directly into your vehicle through the on-board diagnostics port
- Smartphone app
- System that’s built into your vehicle like OnStar or other similar systems
Some insurers give you a choice in which device to use, while others only offer a single option.
How Usage Based Insurance Works
Usage based auto insurance premiums are based on the information collection. When you sign up for a new policy, you’ll be given an initial premium price that’s subject to change after a review period. During that review, telematics are collected and then your premium is calculated.
It’s possible for your premium to increase after the review period because it’s based on how you actually drive and not just the information you may have provided.
Make sure you know how to update travel information. There will be times you’re a passenger. If your device can’t tell the difference between you driving your own vehicle, and you riding in someone else’s car, you don’t want to be penalized for another driver’s behavior.
There are generally two types of usage based insurance to choose from, depending on the insurer.
- Pay-How-You-Drive uses telematics to determine driving behaviors. This can be a great option for very safe drivers.
- Pay-As-You-Go tracks your actual mileage and bases your premiums on this information. This can be perfect for people who rarely drive, like those who work from home.
Either way, your premiums are recalculated at renewal based on the information tracked and collected in the preceding policy period.
Should You Switch to Usage Based Auto Insurance?
Not sure if you should make the switch? UBI can be a great option for many people, but it’s not right for everyone.
Safe Drivers: If you only drive the speed limit, follow traffic laws to the letter, and never stomp on the gas or the brakes, UBI could be perfect for you. Do your friends and family tease you about how cautious you are or how slow you drive? Consider usage based auto insurance for the best price on auto insurance.
Low Mileage Drivers: If you’re working from home or retired and not going out much, UBI might be what you need. Especially if you’re annoyed that you pay full price for auto insurance premiums and only use your vehicle some of the time.
Comfortable with Data Collection: Ultimately, UBI tracks your patterns, behaviors, and driving habits. Not everyone is comfortable with that idea. If you are, and you’re a safe driver, usage based insurance could be a great option for you.
Curious about usage based auto insurance? Contact Charlotte Insurance today and let’s discuss your options!