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What is usage-based insurance?

With usage-based insurance your premiums are based on your habits behind the wheel and how much you drive your car. You could get cheaper rates if you’re a safe or infrequent driver.

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Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Updated|4 min read

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Normally, your car insurance rates are determined by factors like your age, location, and driving history. But with usage-based insurance (or UBI), your rates depend for the most part on how well you drive, how frequently you use your car, and when you drive.

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Some companies only offer usage-based insurance, but most companies have usage-based discounts that can lower the cost of a regular auto insurance policy. People who sign up receive a small discount, and then more savings later on depending on their driving.

Key takeaways

  • Usage-based car insurance is a type of policy where your premium is primarily based on your driving behavior.

  • Most popular companies offer usage-based discounts for their regular policies, while others only have usage-based coverage.

  • Per-mile insurance is a type of usage-based insurance where your rates are mostly determined by how many miles per month you drive, instead of other driving behaviors.

What is usage-based insurance?

Usage-based insurance is just like a regular auto insurance policy, except your rates are determined primarily by your driving habits. This is different from how insurance companies usually determine your cost of insurance — by using your location, age, driving record, credit history, and other personal details.

The cost of usage-based car insurance — sometimes called telematics insurance, user-based insurance, and pay-as-you-drive insurance — is instead determined by your driving habits, such as:

  • Braking: You’ll get better rates if you avoid stopping suddenly.

  • Speed: Companies reward drivers who maintain a safe speed.

  • Driving times: Drive less after 11 p.m. for better rates.

  • Idle and traffic time: Avoid spending a lot of time idling on congested roads. 

  • Phone usage: Don’t use your phone while driving, unless it’s to answer a hands-free call.

  • Total miles driven: Infrequent drivers get cheaper rates with UBI.

If you’re a safe driver or someone who doesn’t often drive, you could get much cheaper car insurance premiums by taking advantage of a company’s usage-based auto insurance discounts.

Can UBI increase the cost of your car insurance?

Yes, if you’re a driver who speeds a lot, brakes hard, and has other poor driving habits, some UBI programs can increase your car insurance costs. Make sure before you sign up you understand the benefits — and the downsides — of any UBI offer.

How does usage-based car insurance work?

Many companies offer usage-based discounts as a way to save on your insurance premiums. You can have an existing policy and still sign up for usage-based car insurance, since the discount will be applied when you renew your coverage.

When you sign up for your company’s UBI discount, you’ll receive a plug-in device or have to download a mobile app in order to track your driving. As you drive, your behavior will be tracked for three to six months before you get a discounted rate.

Companies that have a UBI discount usually offer savings just for signing up for the program. This means that even if your driving test goes poorly and you don’t qualify for a large discount, you can still get one for participating in the program.

What are the types of UBI insurance?

There are two common types of usage-based insurance:

  • Behavior-based insurance is the most common variety of UBI. Also called pay-how-you-drive insurance, behavior-based UBI sets your costs based on how safe a driver you are and how much you drive.

  • Pay-per-mile insurance sets your rates primarily based on how much you drive. Companies that offer per-mile insurance charge a flat rate that’s determined by your age, location, and vehicle type, along with a per-mile cost that changes every month.

→ Read more about how per-mile insurance works and the best companies

How much can you save with usage-based insurance?

Each company offers different savings to drivers who sign up for usage-based insurance. On average, we found that the cost of usage-based insurance is $113 per year less (or about 7%) than the cost of a policy without a usage-based discount.

Depending on the insurer, you could save as little as a few dollars per year or nearly $1,000.

When we looked at the cost of usage-based insurance from some of the biggest insurance companies to compare how much drivers could save, we found that drivers could save the most with Progressive, which is $946 cheaper per year after a usage-based discount.

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Usage-based car insurance companies

Many well-known companies offer usage-based car insurance as a way for drivers to get a discount. While usage-based insurance is common, the discounts offered by companies can vary significantly, so compare companies to make sure you find the usage-based insurance that is most affordable for you.


Usage-based program

Sign-up discount

Max discount

Behaviors tracked


AAA Drive

Yes - 5%


Phone activity, Driving speed, Handling, Time of your trips, Time of day you drive



Yes - 10%


Driving speed, Braking and sudden stops, Time of day you drive

American Family


Yes - 10%


Amount you drive, Braking and acceleration, Driving speed, Time of day you drive, Phone activity





Driving speed, Phone activity, Braking and acceleration





Phone activity, Braking and acceleration, Driving speed, Time of day you drive, Amount you drive





Road type, Amount you drive, Time of day you drive, Weather you drive in

Liberty Mutual




Amount you drive, Time of day you drive, Braking and acceleration





Braking and acceleration, Handling, Driving speed, Phone activity



Yes - 10%


Miles driven, Braking and acceleration, Time in congested traffic, Time of day you drive





Braking and acceleration, Time of day you drive, Amount you drive, Phone activity

State Farm

Drive Safe and Save



Amount you drive, Safe driving habits

The Hartford


Yes - 12%


Phone activity, Handling, Braking and acceleration, Driving speed





Time of day you drive, Driving speed, Braking and acceleration, Phone activity



Yes - 10%


Location, Time of day you drive, Phone activity, Braking, Amount you drive

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Companies that only have usage-based auto insurance

Root and Lemonade only offer usage-based insurance plans. Both companies use only usage-based factors to figure out your insurance rates.

How does Root insurance work?

When you sign up for insurance from Root, you complete a test-drive period, which lasts a few weeks, using the company’s app. Then Root sets your insurance rates based on your driving behavior.

The app continuously tracks your driving behavior until your policy is up. When your six-month policy is up and it renews, your rates may change depending on how you drove during the last policy period.

Root’s claims filing service is different from traditional insurance companies, too. You use Root’s app for everything from applying to filing claims — though the company doesn’t have as great a reputation for its customer service as other top providers. 

→ Read about why we picked Root as the top company for good drivers

How does Lemonade work?

With Lemonade's usage-based insurance, what you pay for car insurance will depend on your speed, braking and acceleration, when and how you drive, and whether or not you use your phone while driving.

Lemonade tracks your driving habits using your phone's location. You have to share your phone's location with Lemonade at all times, but if you're a good driver the company may award you with cheaper-than-average rates.

Frequently Asked Questions

What is a usage-based insurance program?

With usage-based insurance, your premiums are tied to your driving behavior. Companies will lower your rates if you keep a safe speed, avoid sudden braking and rapidly accelerating, and drive during daylight hours instead of late at night, along with other factors.

Is usage-based insurance worth it?

Usage-based insurance can be an easy way for some drivers to save money on their coverage. Good drivers and those who don’t drive frequently can get large discounts on their premiums, but poor drivers can sometimes end up with more expensive coverage.

What’s the difference between usage-based and per-mile insurance?

Per-mile insurance is a type of usage-based insurance. While behavior-based insurance does take into account the amount you drive when determining your rates, per-mile insurance adjusts your rate solely depending on the amount you drive each month.


We found the savings that drivers can get with usage-based insurance by comparing the cost of car insurance for a driver with and without a telematics discount. Policygenius calculated the costs of a full-coverage policy from more than 130 insurance companies across the country. Our sample policy had the following limits:

  • Bodily injury liability: $50,00 per person, $100,000 per accident

  • Property damage liability: $50,000 per accident

  • Uninsured/underinsured motorist: $50,000 per person, $100,000 per accident

  • Comprehensive: $500 deductible

  • Collision: $500 deductible

Some carriers may be represented by affiliates or subsidiaries. Rates provided are a sample of costs. Your actual quotes may differ.