Usage-based insurance (UBI) is a type of auto insurance that sets prices partly based on how well you drive, including speeding, hard stops, time of day driving and mileage. Auto insurance companies that offer UBI will give better rates to safe drivers.

Usage-based insurance collects "telematics data." Telematics uses cellular, GPS and other technology to collect data such as speed and miles driven. Data on your driving is typically collected in one of three ways:

  • Through a plug-in device that connects to the car's on-board diagnostic (OBD II) port.
  • Through a smartphone app.
  • Through systems built into your car, like ConnectDrive, OnStar or Safety Connect.

UBI is optional, and companies that offer it also offer traditional insurance policies. If you're a good driver and your insurer has UBI, it could save you money on car insurance rates.

Is usage-based insurance worth it?

Many insurers offer "good driver discounts" for customers with traditional policies who avoid accidents and claims. UBI insurance could save you even more on car insurance premiums if you:

  • Drive less. Low-mileage drivers typically have fewer accidents.
  • Drive safely. Avoid speeding, hard braking, taking sharp corners and distracted driving, such as phone use.
  • Drive mostly during the day. While driving at night can be unavoidable, late night driving (midnight to 4 a.m.) is more risky.

Signing up for usage-based insurance could backfire if your driving isn't as good as you thought. For example, Travelers and Progressive note that your rate could go up if your driving habits are poor. Find out before you sign up what the possible consequences are for unsafe driving.

Who offers usage-based insurance?

Here are some examples of usage-based programs. Note that availability and discount levels can vary by state.

Allstate Drivewise

  • 5% cash back when you start Drivewise.
  • Up to 13% cash back for every six months of safe driving.
  • Allstate Rewards for completing safe-driving challenges.

American Family Insurance KnowYourDrive

  • 5% discount when you start the program.
  • Up to 40% discount after an evaluation period.

Esurance DriveSense

  • Automatic discount when you sign up.
  • Additional discounts at the time of policy renewal.

Farmers Signal

  • Safe-driving scores could earn you a discount.

Liberty Mutual RightTrack

  • Discount when you sign up and participate.
  • Up to a 30% discount for the life of the policy after an evaluation period.

MAPFRE DriveAdvisor

  • Discount when you sign up and at policy renewal.

Nationwide Insurance SmartRide

  • A discount when you sign up.
  • Up to 40% discount after completing the SmartRide program (approximately four to six months).

Progressive Insurance Snapshot

  • Automatic discount when you sign up.
  • Another discount applied after you complete the program (approximately six months).

Travelers Insurance IntelliDrive

  • Up to 20% discount for safe driving.

Safeco RightTrack

  • After being tracked for 90 days you'll receive a 5% to 30% discount.

State Farm Drive Safe & Save

  • Get an initial discount up to 5% for participating.
  • Updates to your discount at policy renewal time.

If you're curious about your driving habits but don't want to participate in an insurance company's UBI program, you can try a safe-driving smartphone app such as EverDrive from EverQuote. These types of apps track and score driving behaviors such as phone use, speeding and hard braking. You can see if you improve your driving habits over time without having them affect your insurance rate.

FAQ

Do all new cars have telematics?

All new cars can collect telematics data if you connect to the systems. Any vehicle manufactured after 1996 is equipped with an OBD-II port, which can connect with a telematics device from an insurance company, with a scanner that car mechanics use for diagnostics, or with an OBD-II scanner that you buy yourself.

How does telematics work in cars?

By connecting a telematics device to your OBD-II port, you can record how many miles you drive, the time of day, braking, speed, if your airbags deployed and more. Then with a mobile app, you can monitor trips with the collected data.

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

Pay-per-mile insurance is different from usage-based insurance. A typical pay-per-mile car insurance plan charges a base premium rate plus a per-mile rate. Pay-per-mile insurance typically does not factor in driving changes every month like speeding and braking. But the base rate and per-mile rate can use age, driving record and other factors in pricing.