What is Usage Based Insurance for Vehicles?

 Usage-based insurance is also known as pay-as-you-drive, pay-as-you-go, or pay-per-mile insurance, and each of the terms refer to telematics. Telematics measure aspects of driving habits, like hard-braking incidents, miles driven, and driving speed. The insurance firm utilizes an installed device to record outcomes and then rewards those who have low mileage and safe driving habits with discounted rates for car insurance. This type of insurance is increasing in popularity, and a car insurers are starting to provide it as an option to clients to save on insurance premiums.

How Usage-Based Vehicle Insurance Works

Usage-based Insurance (UBI) typically requires installing a tiny telemetry device in the car, linked to the on-board diagnostics port of the vehicle. This enables the device to acquire information from some of the car sensors, as well as the GPS. Several carriers, alternatively, obtain this data utilizing an application in a smartphone that they offer or via a factory-installed device that is already present in a few of the latest cars.

Driving information frequently obtained and scrutinized include destination, miles driven, frequency of use, speed, lateral acceleration, deceleration, and rates of acceleration. Drivers that have safe driving habits are allowed to obtain a premium discount, potentially around 30 percent or more. This depends on the carrier. Less careful, long-distance, tailgating, and lead-foot drivers aren’t penalized. However, they possibly will not be eligible for UBI discounts.

How Old-School Vehicle Insurance Works

Old-school vehicle insurance plans have a premium that depends on past information. Insurance firms look at the age of the driver, whether they often get into accidents, drive a clunker or a luxurious vehicle, and a lot of other elements. Utilizing this data, the company calculates the rate depending on how frequent individuals with similar characteristics filed a claim for certain reasons.

How UBI Calculates More Accurate Rates

UBI prices, on the contrary, depend on the driving habits on an individual. UBI allows insurers to calculate rates based on how that certain individual drives, instead of assuming that everybody in a particular demographic is at a similar risk of getting in a certain accident. Even if you live in a place where most of the drivers love driving at high-speeds, enrolling in UBI will allow the vehicle insurance firm to see that a particular person does not treat driving like a character in the movie “The Fast and the Furious”. The insurance firm will cut the enrollee a lower rate for safe driving habits because of the data they obtained, instead of assumed, aggregated data.


You should have a basic knowledge on how usage-based insurance works by now. It is up to you if you take advantage of it, but at least you’re well-equipped with knowledge about UBI and its difference from traditional car insurance. You know that to obtain possible premiums and prevent increasing your rates, you would have to think twice about how devoted you are to driving carefully, your data privacy, and your driving needs.

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