Usage-Based Car Insurance: Pros, Cons and Who It Suits

Usage-based insurance, often called telematics, prices part of your car insurance on how you actually drive, not only on who you are and where you live. For some drivers it is a route to a lower rate. For others it is an unnecessary privacy trade-off, or even a path to a higher bill. Here is how to tell which group you are likely to be in.

How does usage-based car insurance work?

You enroll in a program offered by your insurer, then share driving data through a smartphone app, a small plug-in device or your car's built-in connected services. The program records your trips for a period that may be a few weeks or the whole policy term, depending on the insurer.

Programs generally fall into two types:

• Behavior-based programs score how you drive, for example braking, acceleration, speed, phone handling and the time of day you are on the road.
• Mileage-based or pay-per-mile programs charge mainly by distance, usually with a base rate plus an amount per mile.

Programs vary widely in what they measure, how long they monitor you and how the results affect your price, so the details of one program say little about another.

Who tends to benefit?

Usage-based programs are designed to reward lower-risk driving. You may be a good fit if you:

• Drive fewer miles than you used to, for example because you work from home.
• Rarely drive late at night.
• Brake and accelerate smoothly and keep your phone out of your hand.
• Have a profile that standard pricing treats harshly, such as a younger driver with a clean record.

If you have a long commute in heavy traffic, often drive late, or share the car with someone whose habits differ from yours, the results may be less favorable.

Pros and cons at a glance

Can usage-based insurance raise your rate?

At some insurers, yes. Some programs only offer discounts, while others can apply a surcharge if the data shows frequent hard braking, high speeds or a lot of late-night driving. Whether surcharges are allowed, and how large they can be, depends on the insurer and on state rules.

Before you enroll, ask directly: “Can this program increase my premium, or only decrease it?” Get the answer in writing or find it in the program terms.

What are the privacy trade-offs?

Telematics programs collect detailed information about your driving. Depending on the program, that can include when and where you drive, how fast, how hard you brake and whether you handle your phone. Read the privacy terms with these questions in mind:

1. What data is collected, and does it include location?
2. How long is the data kept?
3. Is it shared with other companies or used for anything besides pricing?
4. Could it be used when a claim is handled?
5. Can you leave the program, and what happens to your data and your rate if you do?

It is also worth checking whether your car's connected services already share driving data with third parties. Automaker settings and privacy policies vary, so review them even if you never join an insurer's program.

How do you decide whether to try it?

Start with an honest look at how you drive. If you would be comfortable with someone reviewing a week of your trips, the program may work in your favor. Then compare the usage-based offer with standard quotes, because a discount at one insurer does not guarantee a lower total than another insurer's regular rate.

As an illustrative example, if a standard quote were $1,200 a year and a telematics program offered an enrollment discount, the final price could still move up or down after the monitoring period, depending on the program rules. Look at the possible range, not just the starting discount.

Telematics is only one of several ways to lower your premium. Our list of discounts to ask about at renewal covers the others.

For a rough baseline before you decide, try the calculator, or run the free rate check to see what other insurers may offer before your renewal.