What Is Usage-Based Insurance?

02/12/2021

If you feel like you're paying too much for car insurance, you might be right. But it takes more than shopping around to get the best rate. If you drive relatively few miles and follow safe driving habits, personal auto usage-based insurance (UBI) could be a good fit for your family.

Read more for insights into how UBI works and how it can save some families money on auto insurance.

What Is UBI?

UBI is a type of car insurance where your rates are based on your actual driving instead of a fixed monthly rate. The biggest factor in what you pay with UBI is often the number of miles you drive, though other factors may be included in the calculation such as driving behavior.

Through telematics, your insurer may collect and use information such as your driving speeds, acceleration rates, hard braking, hard turns, when you typically drive and even whether you are on your cell phone while driving.

To collect all of this information, the insurer may require you to install an app on your phone, install a tracking device in your car's computer port or tap into your car's built-in tracking system.

Added Benefits of UBI for Teens

Some drivers are not comfortable with the added privacy implications of tracking your driving, but it encourages safety when driving and comes with a financial reward for some good drivers. That can be even more important for parents with teens at home who likely drive relatively few miles and may need a little extra encouragement to drive safely.

Parents with young drivers may also appreciate the added benefit of opening your phone's insurance app to find out exactly where your teen is at any given moment and how well they stick to speed limits.

You can use that information to help keep your teen safer, turn their driving data into teachable moments, and, perhaps, show up to embarrass them if they are at a friend's house and don't answer their phone. In the unlikely event that a vehicle with UBI tracking installed is stolen, you and the insurer can coordinate with police to locate the car and return it. There's a long list of "what-if scenarios" where this type of tracking information could be useful for parents.

If your teen is a low-risk driver, according to the insurance company's systems, and drives relatively few miles, you could find yourself saving a bundle. If you have a short commute or work from home, UBI could make sense for the whole family.

Is UBI Right for Your Family?

UBI isn't appropriate for every family, but many households with drivers in their teens and 20s could find it's the right fit. Some families may save as much as 50 percentcompared to traditional car insurance, so it's definitely worth considering.