What is usage-based insurance and do I need it?

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What is usage-based insurance and do I need it?

Auto insurance is one of those things you wish you didn't need to buy. But, if you don't drive much and want to save money, you may be in luck with some usage-based options, also known as mileage-based insurance.

A primer on usage-based insurance

Your rate for usage-based insurance (UBI) is determined primarily on the number of miles you drive, although some insurers also consider your driving record.

For any UBI policies, you are required to put a device into your car to transmit mileage data to your insurance company. The two biggest insurers in the UBI field are Progressive, which offers its Snapshot device, and Allstate, with its DriveWise program.

Progressive's little silver Snapshot plugs right into your car's OBD-ll port on your dashboard. After plugging in, you simply drive and the device monitors your mileage, as well as your driving habits. Driving data is available for you to view online anytime.

With Allstate's Drivewise, you get a similar plug-in device that also collects data on your miles and driving behaviors. According to Allstate, you are most likely to save money by using Drivewise if you drive less than 25-30 miles per day, avoid tailgating and hard braking, and don't speed.

There are also a couple of other options which only track your miles to determine your auto insurance rates. They include pay-per-mile insurance company Metromile and Allstate's Esurance, which offers its DriveSense device. With both Esurance's DriveSense and Metromile, you'll end up paying a base rate plus a few pennies extra per mile driven. Your driving habits are not part of the rate and if you don't drive much, these two options might be a good fit for you.

So, can I get it?

The short answer is yes... and no. Because this type of car insurance is fairly new, the various insurer products are being rolled out slowly across different parts of the country. Here's where they're available as of early 2016:

Progressive's Snapshot has the widest coverage and is available to drivers in 42 states (everywhere but AK, CA, HI, IN, and NC).

Allstate's DriveWise, on the other hand, is available in just these 22 states: AK, AZ, CO, CT, FL, IL, IN, MA, MD, MI, MN, MO, NJ, NV, NY, OH, OK, OR, PA, TN, UT, and WA.

Metromile, launched in 2011 and aimed at city drivers, is only available in CA, OR, IL, NJ, PA, VA and WA. Plans call for expansion to other states.

Esurance, which unveiled DriveSense in October 2015, is only available in Oregon. According to Esurance, Oregon was a logical place to launch as almost a quarter of Portland's 300,000 plus workers ride transit, bike, or walk to their jobs.

"Our customers will pay largely based on how many miles they drive, whether that's 1,000 or 10,000 miles per year," said Eric Madia, auto products vice president at Esurance, in a press announcement. "Esurance is responding to consumer demand for alternative insurance options for those who drive less, opting to walk, bike, or take public transportation instead."

How much money will I save?

In a nutshell, with mileage-based policies the less you drive, the more you save.

At Metromile and Esurance, if you don't drive at all, you only pay the low monthly base cost. Or, if a road trip is in your future, you'll only be charged for a maximum of 150 miles in a day (250 per day in Washington through Metromile).

Factoring in an average of 200 miles a week driven and under 10,000 miles a year, you'll save about $500 a year at Metromile.

Remember, though, that to obtain this type of insurance you are agreeing to share details of your driving habits and patterns with your insurer. For most drivers this is worth it if it means lower premiums, but you should be aware of what you're agreeing to all the same.

To learn whether this type of car insurance is the best and lowest-priced option for you, it's best to contact a UBI/pay-per-mile provider or your own insurance agent.

Photo: Ángel Álvarez