How Usage-Based Car Insurance Works

Key Takeaways

• Usage-based insurance is a program where insurers monitor driving behavior in return for a potential premium discount.
• Safe drivers can potentially lower their premiums, though risky drivers might see their rates increase.
• Major insurers like Progressive, State Farm, and Nationwide typically offer usage-based programs.

What Is Usage-Based Insurance?

Rather than a distinct insurance type, usage-based insurance is a discount opportunity that utilizes telematics—data collection technology—to assess driving habits.

Insurers generally provide a premium discount upon enrollment. Safe drivers may qualify for additional discounts upon renewal or after a trial period.

However, risky driving habits can lead to increased premiums. For instance, Progressive reports that two out of ten participants in its program experience a rate increase.

Insurers may gather driving data via a mobile application or a plug-in device, evaluating behavior over a 90-day period or on a continuous basis.

Is Usage-Based Insurance Different From Regular Auto Insurance?

No, the coverage remains identical to a standard auto policy. While usage-based insurance factors in actual driving behaviors to calculate rates, it provides the same coverage as a regular policy. Your driving record, vehicle, and personal factors still influence your insurance costs.

Pros and Cons of Usage-Based Insurance

Pros

• You may qualify for significant discounts, potentially exceeding 40% at renewal in certain cases.
• You receive feedback to help improve your driving safety.
• You can opt out of the program if it does not meet your needs.
• Safe drivers may qualify for additional perks, such as giveaways, depending on the program.

Cons

• Your rates may increase if you do not qualify for a discount.
• You must share extensive real-time driving data with your insurer.
• Usage-based insurance is not available in all regions; for example, California does not permit these programs.

Driving Habits Tracked by Usage-Based Insurance

Usage-based insurance monitors how well, when, and how much you drive. However, insurers weigh each driving habit differently.

• The time of day you drive
• The force of your braking
• Your acceleration and speed
• Your handling and cornering
• Cell phone usage while driving
• Your total mileage
• Any accidents you are involved in
• The amount of time your vehicle is idle during a trip

Usage-Based Insurance vs. Per-Mile Insurance

Some insurers offer per-mile insurance, where your rate depends entirely on the number of miles you drive, resulting in a varying monthly premium based on your mileage.

While mileage is a factor in most usage-based programs, it is the primary determinant of your rate in a per-mile program. While a handful of insurers, including Allstate, Lemonade, Nationwide, and USAA, offer a standalone per-mile option, most major carriers provide usage-based insurance.

Is Usage-Based Insurance Right for You?

Usage-based insurance offers benefits but is not suitable for every driver. It may be worthwhile if you are a safe driver comfortable sharing your data with your insurer to potentially secure lower premiums.

These types of drivers might also benefit from usage-based insurance:

• New drivers and parents: This program can help parents reduce family premiums, and it may reinforce safe driving habits for teens and young drivers.
• Drivers with poor credit: Because poor credit can increase rates by an average of 49%, safe drivers with poor credit may benefit from usage-based insurance to lower their premiums.
• Infrequent drivers: If you rarely use your vehicle, mileage-based factors in these programs could work in your favor, as infrequent drivers are statistically less likely to be involved in an accident.

Which Companies Offer Usage-Based Insurance?

Most major U.S. car insurance companies offer usage-based insurance.

Programs are similar across insurers but vary in advertised discounts and tracked behaviors. Availability also differs by state, even if the insurer sells standard auto insurance elsewhere.

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