Usage-Based Insurance: Savings vs. Privacy

Usage-Based Insurance: Savings vs. Privacy

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Usage-based insurance (UBI) is a way insurers adjust rates or discounts after gathering data on the driving habits of customers. UBI programs have the potential to offer more benefits in the current moment, as more Americans have begun working remotely.

With telematics programs, insurance companies will track a litany of driving factors either through a device that plugs into your car or with an app. Driving less or avoiding night driving, phone usage and rapid braking could earn you a discount from many of the largest insurers in the country, including State Farm, Progressive, Allstate, Geico and Liberty Mutual.

However, to get the discounts from at least five national insurance companies, you will have to allow the company to track your location. Two of those insurers, State Farm and USAA, track your location continuously as part of their UBI programs.

What is usage-based auto insurance?

Usage-based car insurance is broadly the practice of adjusting a driver's rates based on actual driving habits and data collected. Insurance rates are traditionally based on backward-looking measures such as driving record, credit score or personal characteristics.

However, with modern tracking technologies, called telematics, insurers can collect information about how a customer drives and reward good behaviors. It allows for prices that are more customized, maximizing value for safer drivers.

Usage-based insurance is often divided into two categories:

  • Pay how you drive: This type of UBI will track the quality of your driving and the situations in which you drive. This is most commonly used as part of discount programs, often from major insurers.
  • Pay as you drive: This type of UBI, also called pay-per-mile insurance, actually ties your rates to how much you drive. More miles on the road means higher rates, but drivers can save by limiting their driving.

How UBI works

Usage-based insurance usually requires placing a small telemetry device (provided free of charge by the insurer) in your vehicle, connected to the car’s on-board diagnostics port, or use of a phone app. The device captures data from a number of vehicle sensors as well as via GPS.

The device or app will collect data on a range of behaviors and other driving factors, including:

  • Time of day
  • Sudden changes in speed
  • Speed
  • Phone usage
  • Distance driven
  • Location

Not every company tracks all of these factors and not every company will use them in calculating potential rates or discounts. Insurers usually give drivers a trial period and then provide a discount.

Some insurers, notably Nationwide and Liberty Mutual, lock in a discount for the life of the policy, while others, such as Allstate and Geico, reassess a driver's discount each renewal period.

Program name
Maximum discount
Length of review period
Can premiums go up?
Phone usage impacts discount?
Nationwide SmartRide40%Four to six monthsNoNo
Progressive Snapshot$37 average sign-up discount, $145 average final discountFirst policy period (~six months)YesYes, if using Snapshot mobile app
Allstate DrivewiseNo maximum discount; initial sign-up discount, then drivers receive performance discounts for safe drivingFirst 50 trips (minimum of 60 days), then every six monthsDiscount may increase or decrease depending on driving performance during previous policy periodsNo
Liberty Mutual RightTrack30%90 daysNoNo
Geico DriveEasy25%First policy periodYesYes
State Farm Drive Safe & Save30%, 50% for some customersEach policy renewal period (~six months)Discount may increase or decrease depending on driving performance during previous policy periodsYes
USAA SafePilot20%Each policy renewal periodDiscount may increase or decrease based on performance during the policy period immediately prior to the discountYes

The descriptions of policies for Drivewise are for the app-based program, as this is the most common version.

Pay-per-mile auto insurance

With pay-per-mile car insurance, sometimes called pay-as-you-go car insurance, your premiums are based on how much you drive. However, your driving record will still factor into your baseline rate.

Drivers' rates consist of two parts: a monthly base rate, based on a range of factors including your driving record, and a per-mile price, which is usually less than 10 cents.

This type of insurance can provide a high level of savings for vehicle owners who drive infrequently, especially those who live in urban downtowns or who do not have a commute and work from home. Some options for pay-per-mile, or "drive less, pay less," coverage include:

  • Metromile
  • Nationwide SmartMiles Pay-Per-Mile Insurance Review: Is it Worth It?
  • Allstate Milewise

Drivers who can benefit the most from UBI

Drivers in the best position to take advantage of usage-based insurance are ones with safe habits behind the wheel or those who simply drive less. Many major insurers will offer at least up to 20% in savings for avoiding dangerous driving situations, with some offering as much as 40% off.

Many full discounts can only be earned by avoiding driving in certain situations. This means your discount might not be based on factors you directly control because even a safe driver might have to drive in these conditions where accidents are more common.

  • Driving at night
  • Driving in traffic
  • Driving in poor weather conditions
  • Overall mileage driven

If you are better at avoiding sudden acceleration or braking, or you are disciplined in not using your phone behind the wheel, it could translate into big savings through certain discount programs. Most of those programs will not raise your rates for bad habits, but some will.

Not every usage-based insurance program will reward you for driving less, but some will. That's the basis of pay-per-mile programs, which offer the chance for big savings for those who drive a below-average number of miles per year.

This can benefit those who work at home, those who take public transportation to commute or those who are simply at a point in life when they drive less. That group has been larger for the past year, as the coronavirus pandemic reduced the total miles driven in the U.S. by more than 16%, according to the National Highway Traffic Safety Administration.

Privacy implications of usage-based insurance

When you enroll in a usage-based insurance program, you will be giving up a certain measure of privacy in exchange for potentially cheaper rates. The amount of data an insurer collects varies by company and can vary based on state regulations.

For example, Allstate will only track a range of changes in speed, plus time of day, miles driven and a few other basic pieces of information. Other usage-based insurance programs will track your exact location, or your car's location if you chose a plug-in device instead of an app.

Usage-based insurance program
How long you are monitored
Required location tracking
Liberty Mutual RightTrack90 daysNo
Nationwide SmartRideFour to six monthsYes
Progressive SnapshotFirst policy periodYes, though it will not factor into discount
Geico DriveEasyFirst policy periodYes, though it will not factor into discount
Allstate DrivewiseContinuouslyNo
State Farm Drive Safe & SaveContinuouslyYes, when driving
USAA SafePilotContinuouslyYes
RootContinuouslyYes

UBI systems rely on either a plug-in device for the vehicle, which means the insurance follows the vehicle and not the driver, or an app. App-based tracking at times can require some adjustment if you are a passenger on a trip or if a passenger uses the driver's phone.

In many cases, you can see the data that has been collected on your driving, and in some cases, it is legally required that it be made available to customers.

The fact that your data is being tracked can be a double-edged sword in certain situations. Some insurers have data about your movement and whereabouts, which can be used both by government authorities and in some court cases.

That could be a good thing if you stand accused of something you didn't do and your location could prove your innocence. However, it could also provide evidence against you or show you were at fault in a given accident.

Top usage-based insurance companies

Liberty Mutual and Nationwide offer some of the best options for usage-based auto insurance, according to rankings compiled by ValuePenguin. Each scored well in terms of potential discounts and monitoring periods that lasted six months or less.

Nationwide also has an option for pay-per-mile insurance, a different program that is well-suited for those who drive less often.

Some smaller companies only offer usage-based insurance. For example, Root and Noblr will set your premiums primarily based on telematics from a test drive. Metromile is a company that only offers pay-per-mile coverage.

  • Liberty Mutual RightTrack
  • Nationwide SmartMiles and SmartRide
  • Allstate Drivewise and Milewise
  • Progressive Snapshot
  • Geico DriveEasy
  • State Farm Drive Safe & Save
  • USAA SafePilot
  • Metromile
  • Root
  • Noblr

Frequently asked questions

What is usage-based insurance?

Usage-based insurance is the use of telematics devices, which track driving habits, to set car insurance rates and discounts. Usage-based savings can be based around better driving habits or simply driving fewer miles overall.

How does usage-based insurance work?

Once you enroll in a usage-based insurance program, your insurer will track your driving habits and in some cases, how much you drive overall. Your rates will be adjusted based on different behaviors behind the wheel.

What is telematics?

Telematics is the method of monitoring vehicles and vehicle movement that allows usage-based insurance to function. It commonly refers to the technology used to track and collect data on a customer's driving.

What is pay-per-mile insurance?

Pay-per-mile insurance is a form of auto coverage pricing in which a driver pays a base monthly rate and a small fee for each mile driven. Miles are tracked using telematics, and premiums are lower for those who drive less.

What habits does usage-based insurance track?

The set of behaviors tracked by a usage-based insurance company depends on the company, but three nearly universal factors are driving at night, sudden braking and sudden acceleration. Other habits that can affect rates include phone usage, driving in severe weather and driving in traffic.

What discounts can UBI get me?

Larger insurance companies offer discounts that max out at 20% to 40%. Some insurers give drivers 5% or 10% off just for enrolling. Pay-per-mile insurance can reduce rates by hundreds of dollars per year if a driver simply travels less in their car.

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