Benefits of usage based insurance

During the pandemic, Americans were driving far less than normal, resulting in fewer accidents, less damage and lower insurance costs. Because insurers had lower costs, many insurance companies returned premiums to their customers.

You may be thinking, "Wait, why don't I always get an insurance discount when I drive less?"

Depending on how much you drive, you could pay less for auto coverage with a usage-based insurance, or UBI, policy. Here's an overview of what UBI is, how it works, and some of the perks that come with this special type of auto premium.

What is usage-based insurance, or UBI?

Insurance premiums are all about predicting the likelihood of claims. To anticipate costs, insurance providers rely on risk classes, or a group of drivers who share certain characteristics, such as age, vehicle model and location.

Insurance companies calculate the average frequency and severity of auto accidents among the group. They then use that data to set auto premiums for those drivers. The riskier the group, the higher the premiums will be.

But not everyone benefits from an average judgment. It increases ratings for poorer drivers while lowering them for the better drivers in the same risk class. Your premium is the same, whether you commute several hours in the car each day or drive once a week.

With UBI policies, things are different. Risk class is still a factor, but your driving habits also influence your premium. This means what you pay is more closely tied to your performance on the road, not just the average.

UBI breaks down your premium based on how much you drive. Some companies call it mileage-based insurance or a per-mile premium. The idea is the same either way: If you drive less, you pay less. So if you drive once a week to work and carpool or ride your bike the other days, your premium should be less.

How UBI works: Telematics and data collection

To make sure you're billed the right amount, your insurance company needs a way to track your mileage.

One of the most common ways is to install a telematics device, also known as an onboard device, or OBD, in your vehicle. These small, unobtrusive electronic devices can connect to your car's computer and capture data about how much you drive, how well you drive and when you drive.

Your vehicle may come with a preinstalled telematics device such as OnStar® by General Motors or BMW ConnectedDrive. If so, your insurance provider may be able to connect to that existing system without installing a separate one.

Depending on your provider, you may be able to skip the onboard device and use a mobile app. These apps use your smartphone's built-in sensors and GPS to keep track of your mileage. They also can track driving data like harsh braking, turning, acceleration, speed and the time of day when you're driving. Your insurance company then reviews this data to assess your performance.

Who can benefit from usage-based car insurance?

Usage-based insurance isn't a one-size-fits-all solution, but it can be particularly advantageous for certain types of drivers. If you fall into one of these categories, UBI might be worth exploring:

Low-mileage drivers: Paying for what you use

If you don't drive much, you might be overpaying for traditional car insurance. UBI programs, especially pay-as-you-drive models, can be incredibly beneficial for low-mileage drivers. Since your premiums are directly tied to the number of miles you drive, you'll only pay for the coverage you need. This can result in significant savings compared to standard insurance policies that assume a higher average mileage. If you work from home, use public transportation or only drive occasionally, UBI could be a great fit.

Military service members: Paying while on assignment

A usage based program policy can be a great option for military service members, especially those who are highly mobile and frequently deployed.

After all, if you're not able to drive your car for several weeks or months, or if you're normally a lower mileage driver, why should you pay the same amount for insurance coverage as someone who's driving every day?

UBI also makes pay-as-you-go pricing possible, which can be an advantage with the military's pay schedule. While typical auto premiums are paid in large installments of three, six or 12 months, drivers who take advantage of UBI programs will usually pay for their coverage monthly. That's much more flexible for many people.

Top benefits of usage-based insurance

UBI offers a range of compelling benefits that traditional car insurance often can't match. Here's a breakdown of the key advantages:

Personalized premiums: Control your costs

Traditional car insurance often relies on generalized risk assessments, which can sometimes feel unfair. One of the most significant benefits of UBI is personalized premiums. Instead of relying on broad demographic factors, UBI calculates your insurance costs based on your actual driving habits. This means you have direct control over how much you pay.

Potential savings: Lower insurance rates

For many drivers, UBI offers the potential for significant savings on car insurance. Low-mileage drivers including military members can see substantial reductions in their premiums with pay-as-you-drive programs.

Real-time feedback: Improve your driving skills

Many UBI programs offer real-time or regular feedback on your driving habits. This data can be invaluable for improving your driving skills and identifying areas for improvement. Whether it's reducing hard braking or maintaining a more consistent speed, the feedback provided by UBI can help you become a safer and more efficient driver.

Increased transparency: Understanding your insurance costs

UBI programs provide detailed information about how premiums are calculated. These programs rely on real-time data, including driving behavior, to determine how much you pay. While your rate could be discounted, it's possible that your policy's premium will increase. This increased transparency allows you to understand exactly what factors are influencing your insurance costs. This can be empowering, allowing you to take control of your insurance expenses by adjusting your driving habits.

Is usage-based insurance right for you?

At USAA, we're committed to serving the unique needs of the military community. We're expanding our usage-based insurance offering to provide our members with better service and savings, such as lower premiums based on personalized pricing.‍ ‍ ^{See note 1}

Ultimately, UBI programs help you access more personalized pricing for auto coverage and take greater control over your insurance. UBI replaces the one-size-fits-many nature of insurance rates to find a customized premium based on your actions behind the wheel.