Auto insurance companies are increasingly offering “usage-based insurance” rates that rely on cellular or GPS devices to monitor how you drive. These rates can offer significant discounts from what your traditional auto insurance might offer, but there are also trade-offs. Here’s what you need to know to decide if usage-based insurance is right for you.
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What is Usage-Based Insurance?
Usage-based insurance—0r UBI—uses devices known as telematics, which are typically a mobile app or gadget plugged into your car’s dashboard. These devices collect and transmit data about your driving behavior including your vehicle’s location, speed, distance, harsh braking, seat belt usage, fuel consumption, battery voltage, and engine data. Some UBI programs use telematics for a few months, while others are continual.
Telematic data differs from traditional auto insurance, which bases its rates on factors like your age, gender, marital status, vehicle type, garage location, liabilities, and deductions, as well as your driving record and credit-based insurance score. UBI insurance uses this data too, but telematic data allows for additional discounts based on how well you drive.
Types of UBI plans
There are generally two types of UBI plans: pay-as-you-drive (PAYD) and pay-how-you-drive (PHYD) plans. PAYD tracks usage of your car and rewards people who drive less, while PHYD rewards how you drive by monitoring for risky behavior, such as speeding or slamming on the breaks. Savings can vary from 5% to 40% depending on the type of driver.
- UBI rewards good driving with a lower rate.
- A tracking device lowers vehicle theft claims.
- Tracking improves driving behavior.
- For businesses, tracking discourages the misuse of vehicles.
- You can receive discounts for signing up.
- The most obvious is privacy, giving your data to an insurance company.
- Tracking can be a pain to set up.
- If you’re not actually a good driver, your premiums could go up instead of down.
- Your driving information could be used against you in court.
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Privacy is definitely a trade-off. With UBI you are revealing your habits: the places you like to go, where you live, and who you associate with. Some programs even require your telematics device to be turned on at all times.
While UBI carriers claim they don’t share the driver information with third parties, insurance companies will have to turn over data to assist criminal prosecutions if compelled by law. Data breaches are another possible security concern, too.
If you’re a very safe driver that doesn’t worry too much about privacy, UBI will save you money. If you’re not the best driver though, or you worry about handing over your data and the potential pitfalls that come with it, skip the telematics and stick with traditional insurance.