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What is usage-based insurance?

Usage-based insurance covers how you actually drive, instead of how your insurer thinks you'll drive based on its statistics. That could mean lower premiums.

Car insurance protects you from having to pay out of pocket for damages or injuries you cause with your car. It can also pay to repair or replace your car when it’s damaged or lost in a peril covered by your policy.

Your premiums – the amount you pay to keep your policy active – are partly determined by the amount of risk you pose. If you’re a good driver or don’t drive often, your auto insurance company may lower your premiums. Traditionally, car insurance underwriters have used statistics to determine risk based on how people with your characteristics and driving habits are likely to drive.

However, some car insurers are increasingly basing your premiums on how you actually drive. This is called usage-based insurance. Under usage-based insurance, the more safely you drive, the lower your premiums will be. Naturally, the riskier a driver you are, the higher your premiums will be. Usage-based insurance can save you money over traditional methods of calculating premiums if you, on average, are a better or less-frequent driver than your demographic peers.

Read on to learn more about usage-based insurance:

How does usage-based insurance work?

Usage-based car insurance, also called pay-as-you-drive (PAYD) insurance, pay-per-mile insurance, or telematics, is car insurance that calculates your premium based on your actual usage of your car. The theory behind it is that if you’re not driving, you’re not likely to get involved in an accident.

Usage-based insurance is a relatively new product, so not every insurer currently offers it. It’s also been slow to catch on with consumers because of the privacy issues inherent with letting an insurance company track your driving.

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Some usage-based insurance rates are based solely on the number of miles you drive during the policy period. Other insurers factor in your driving record as well, which is called behavior-based car insurance. With the former, you can drive as riskily as you want without it affecting your premiums (unless someone files a claim against your insurance), but that means it may also be more expensive than behavior-based insurance for otherwise safe drivers.

To monitor your driving behavior, auto insurers will ask you to report the information every policy period. When you renew your policy for another period, the insurer will use the information you reported to adjust your rate. If the insurer determines that you’ve become a better or less-frequent driver since the last time you renewed your policy, you may be able to save hundreds of dollars.

Whether you want to purchase a usage-based car insurance policy or a traditional policy entirely depends on your needs. Talk to a representative at Policygenius to find out what types of coverage fit into your budget.

How do I report my driving?

You may have a couple of options to report your driving to the insurer. Insurance companies vary on what types of reporting options you have.

Mobile app

A mobile app for your smartphone functions as a GPS to record how much you drive. Within the app, you’ll be able to see your most recent trips, how much you drove during them, and what time you were driving. Driving less or at less risky times (that is, avoid late nights on weekends, for example) can result in a lower premium.

You may also be able to see certain risky actions you took, such as using your phone, driving too fast, accelerating too quickly, or braking too hard. If you record too many of these, your insurance premiums will likely go up.

The app may run in the background and only activate when it detects that you’re moving at a certain speed.

Plug-in device

A dongle or other connecting device that plugs into your car’s OBD port. (That’s the on-board diagnostics.) As with the mobile app, the plug-in device also features a GPS system, and records all your driving trips as well as any unsafe maneuvers you made while driving.

You’ll be able to see logs of all your driving habits by logging onto your carrier’s website.

Which companies offer usage-based insurance?

Because usage-based insurance hasn’t attracted as much interest from consumers, it may be difficult to find an insurer that offers it. But some of the best car insurance companies are coming around. Note that those insurers that do offer telematics may only do so in some states.

Progressive

Progressive’s program is called Snapshot and offers both an app and a plug-in device, as well as a 30-day trial period to make sure that pay-as-you-drive insurance is right for you.

In September 2018 Progressive announced a commercial usage-based insurance program called Smart Haul for truckers.

Esurance

Esurance’s usage-based insurance is called DriveSense. Currently, DriveSense is only offered in 18 states. Both app-based and device-based monitoring are available.

Metromile

Metromile is an insurance company that only offers usage-based insurance, as opposed to other insurers that also offer traditional car insurance. Metromile offers both pay-as-you-drive insurance, which tracks the miles you drive, and pay-how-you-drive insurance, which also tracks behavior.

However, the company only offers insurance in Arizona, California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington.

Nationwide

Nationwide’s usage-based insurance option is called SmartRide. You’ll be sent a plug-in device and be able to track your progress. Additionally, you only have to run the device for a single policy period to lock in your car insurance discount. You have to already be a Nationwide customer, but using the OBD-II port device will never raise your rates, only lower them if you’re eligible.

Other insurance companies that offer car insurance discounts based on telematics data include:

  • Allstate’s Drivewise program
  • Safeco’s RightTrack program
  • Travelers’s IntelliDrive program
  • State Farm’s Drive Safe & Save program

Disclaimer: Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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