If I were to suggest that you allow your auto insurance company to track your driving habits, you might say, “no way, I don’t want to be tracked!” But, if I were to tell you that by allowing your insurance company to track your driving, you might be eligible for a discount on your premium, would you go for it?
Traditionally, auto insurance premiums are calculated based on a variety of factors, including your age, where you live, what kind of car you drive, and your driving record. By aggregating and compiling many years of data, insurers have come up with categories of premium pricing into which the company lumps you based on how your situation compares to the historical data.
For example, you might have heard that people in high-population areas or big cities pay more for auto insurance. This is because historical data shows that accidents and theft are more likely to occur in these areas than in less populated, rural areas. If you’re big-city car owner, the insurers simply lumps you into this category and charges you the premium associated with that category.
You might be thinking, “I shouldn’t be penalized for other people’s bad driving habits. I’m a good driver, my insurance should cost less!”
Enter Usage-Based Insurance
Usage-based insurance is a type of car insurance that bases the cost of a policy on how safe a driver’s habits are. Data about the driver’s habits is collected by either a device attached to the vehicle or by an app on the driver’s smartphone. That data is transferred to and analyzed by the insurance company to determine whether and how much of a discount to apply. The “safer” the driver, the bigger the discount.
To get started with usage-based insurance, you need a way to transmit data about your driving to the insurance company. You may be able to use built-in telematics systems like OnStar or SYNC. If your car doesn’t have those systems or a similar compatible system, your insurance company will provide to you a device that plugs into the diagnostic port in your car. Some companies offer a smartphone app to track driving.
Some insurance companies offer an immediate discount of 5 or 10% just for signing up. After about six months of collecting data, your insurance company will determine whether you are eligible for additional discounts based on your actual driving habits. The additional discounts might not apply until the start of your next renewal period. Most drivers will see a discount in the range of 10-15%. In Ohio, the average annual discount is $34, Kentucky $64, and Indiana $27.
Insurance companies offer discounts for purchasing usage-based policies because safer drivers cost them less. Using the data collected from your driving, the company can calculate, for example, the likelihood that you will get into a costly accident or be the victim of auto theft. If your data shows that you are less likely to cost the company money, then they are willing to pass some of those savings to you.
Should I Consider Usage Based Insurance?
Whether usage-based insurance is right for you depends on your situation. One of our friendly and knowledgeable representatives will be happy to discuss with you whether usage-based insurance is the right choice.
Although the details of each program vary, generally if you drive less than 11,500 miles per year, maintain the speed limit, brake softly, and don’t mind your driving habits and location being tracked, usage-based insurance might be right for you. Some insurers focus only on the distance you drive every year while other insurers consider multiple factors. Some programs even provide real-time alerts for unsafe behavior and display feedback after your trip. This can allow you to alter your driving habits and improve your score, insurance rate and safety!
Most usage-based policies will result only in a discount on your premium. Although unlikely, it is possible that a policy could add a surcharge to you premium if the insurance company deems your driving habits unsafe, such as speeding or frequent late-night driving. While some insurance companies lock in the discount based on the first six months of your driving data, other companies continue to track you and might even remove a portion of the discount after a few “unsafe” trips. There are a lot of considerations, but don’t worry, American Heritage Insurance Group is happy to help you determine which company’s program is the best for you.
If you worry about your teenager’s driving habits, usage-based insurance, particularly programs that use mobile apps, could bring you a sense of relief (we hope!). Parents can monitor their teen’s driving habits and use the feedback to correct bad behavior. This benefit goes beyond saving a few dollars – it could save a life! Even if your teen drives your car or their friend’s car, the app will continue to track and provide feedback. One downside, however, is that if your program allows surcharges for bad driving, your teenager’s bad habits could increase your premium. Remember, insurance for teenage drivers is already expensive! If you are concerned about this, talk to your agent at American Heritage and we can recommend a program to best suit your needs.
A program that uses a mobile app is also a good option if you frequently drive different cars. Maybe you commute in one car and on the weekends use your spouse’s car. Maybe you travel frequently and drive rentals. In either case, the mobile app continues to send data to the insurance company and you’ll continue to rack up safe driving points.
The pandemic might be another good reason for you to look at usage-based insurance. If you commuted many miles to work before the pandemic but now work from home, a program that calculates the discount on how little you drive might offer big savings.
Usage-based insurance allows insurance companies to monitor your driving habits to determine a discount on your auto insurance premium for safe driving. This is done with a device inserted into your vehicle or by an app on your smartphone. If you already adhere to the speed limit, brake softly, or drive infrequently, you might be eligible for a substantial discount if your insurance company offers such a program. As you drive and receive discounts, it may be an incentive to even drive a little safer. Either way, give us a call to find out what programs are available and whether it makes sense for you to sign up for usage-based auto insurance.
Article By: Tony diFrancesca