Are you tired of paying a high car insurance premium even though you don’t drive much? Traditional car insurance plans charge a flat rate, no matter how little you drive. However, a new option, usage-based insurance (UBI), is changing the game.

With UBI, your premium is based on how much you drive and how safely you drive. The less you drive and the safer you drive, the less you pay. Factors like mileage, time of day, sudden acceleration/braking, and more affect your premium. Are you interested in saving money on car insurance? Keep reading to discover how UBI works and how it can help you save.

What is usage-based insurance?

Usage-based insurance, also known as pay-as-you-drive or pay-how-you-drive insurance, is a type of car insurance where the cost is based on how you drive rather than just your age, gender, or the type of car you have.

Your insurance company puts a little device in your car that tracks how far you drive, when you drive, how fast you go, and if you brake suddenly. Then, they use this info to determine a personalised insurance price. If you drive safely and responsibly, you could pay less for your insurance.

How usage-based insurance works?

Usage-based insurance works with a small device that gathers information about how you drive and sends it to your insurance company. This device connects to your car’s onboard computer through a port and can keep track of things like:

• Miles driven
• Time of day driven
• Sudden acceleration/braking
• Speed
• Cornering and swerving
• Device connectivity

The device sends information about your driving to your insurance company. They use special computer programs to study how you drive and decide how much to charge you based on how safe a driver you are.

Types of usage-based insurance plans

There are generally three common types of usage-based plans:

• Pay-as-you-drive: These plans charge you based on the number of miles you drive. Drive fewer miles and pay lower premiums.
• Pay-how-you-drive (contd): Your actual driving behaviour, speed, quick and acceleration/braking are monitored, and your rates are determined. Safer driving = lower premium
• Pay-as-you-go: This is a hybrid model in which you pay a base premium for a set period and mileage limit. A metered rate kicks in after hitting the mileage cap or time duration.

Your insurer’s specific UBI model will determine precisely how your rate gets calculated. But in general, the less and more carefully you drive, the more you stand to benefit from significant discounts.

As you can see, UBI provides a way to pay for insurance that closely aligns with each driver’s unique habits behind the wheel. The savings can increase over time for those who drive minimally and carefully.

Benefits of usage-based insurance

There are lots of good reasons to consider making the switch to UBI for your car insurance needs:

• Lower premiums: This is the big one. UBI ties your premium directly to your driving habits, so less and safer driving means less money out of your pocket. Drivers often see savings of 10-15% or more compared to traditional policies.
• Fairer rates: Under flat-rate insurance, careful drivers unfairly subsidise riskier drivers. UBI premiums are tailored to match each driver’s behaviour, levelling the playing field.
• Encourages safer driving: Knowing that each sudden brake or late-night trip can raise your rate is a powerful motivation to build better habits. This makes UBI customers statistically safer drivers.
• Easy to try: You can try a UBI policy for 6 months, check potential savings, and then decide to switch permanently.
• No mileage limits: Unlike flat-rate insurance, which requires high-mileage drivers to pay excess mileage fees, UBI premiums seamlessly accommodate any mileage.
• Flexibility: Life changes like moving, changing jobs, or driving less in retirement are no problem. UBI premiums update automatically as driving habits change.

Usage-Based Insurance (UBI) has the downside of needing to put a device in your car to track how you drive and make sure it’s charged. But it could be worth it because it might help lower your insurance costs.

Is usage-based insurance right for you?

Usage-based insurance offers significant benefits for many drivers, but there are better choices for everyone. UBI tends to reward specific driver profiles in particular:

• Drivers who have short commutes
• Drivers who don’t use their car as their primary vehicle
• Safe and careful drivers
• Younger drivers with good driving habits

On the other hand, UBI likely won’t save money for:

• People who drive a lot, especially on highways
• People who drive long distances at night or during rush hour
• People who tend to drive fast or have had speeding tickets or accidents
• Families with teenagers who are driving

Conclusion

Ultimately, usage-based insurance can be an excellent way for some drivers to save money on car insurance premiums. Careful and low-mileage drivers benefit the most by tracking driving data and basing rates on individual habits behind the wheel. Usage-based policies are easy to try out risk-free and encourage building better safety habits over time. Many companies offer competitive usage-based insurance options with discounts for driving less and more cautiously. Drivers interested in lowering their rates can learn more by contacting providers to discuss whether usage-based insurance matches their needs. Taking the time to explore and understand usage-based insurance can pay off through lower premiums.