Drive less, pay less: The perks of usage-based insurance, or UBI

During the pandemic, Americans were driving far less than normal, resulting in fewer accidents, less damage and lower insurance costs. Because of the lower costs insurers saw, many insurance companies returned premiums to their customers.

You may be thinking, "Wait, why don't I always get an insurance discount when I drive less?"

Depending on how much you drive, you could pay less for auto coverage with a usage-based insurance (UBI) policy. Here's an overview of what UBI is, how it works, and some of the perks that come with this special type of auto premium.

What's usage-based car insurance?

Insurance premiums are all about predicting the likelihood of claims. To anticipate costs, insurance providers rely on risk classes. That's a group of drivers who share certain characteristics, such as age, vehicle model and location.

Insurance companies calculate the average frequency and severity of auto accidents among the group. They then use that data to set auto premiums for those drivers. The riskier the group, the higher the premiums will be.

But not everyone benefits from an average judgment. It increases ratings for poorer drivers while lowering them for the better drivers in the same risk class. Your premium is the same, whether you commute several hours in the car each day or drive once a week.

With UBI policies, things are different. Risk class is still a factor, but your driving habits also influence your premium. This means what you pay is more closely tied to your performance on the road, not just the average.

UBI works by breaking down your premium based on how much you drive. Some companies call it mileage-based insurance or a per-mile premium. The idea is the same either way: If you drive less, you pay less. So, if you drive once a week to work and carpool or ride your bike the other days, your premium should be less.

Track mileage and more with UBI telematics

To make sure you're billed the right amount, your insurance company needs a way to track your mileage.

One of the most common ways is to install a telematics device, or onboard device (OBD), in your vehicle. These small, unobtrusive electronic devices can connect to your car's computer and capture data about how much you drive, how well you drive and when you drive.

Your vehicle may come with a preinstalled telematics device such as OnStar® by General Motors or BMW ConnectedDrive. If so, your insurance provider may be able to connect to that existing system without installing a separate one.

Depending on your provider, you may be able to skip the onboard device and use a mobile app. These apps use your smartphone's built-in sensors and GPS to keep track of your mileage. They also can track driving data like harsh braking, turning, acceleration, speed and the time of day when you're driving. Your insurance company then reviews this data after a set time to assess your performance.

Telematics devices can also be used for behavior-based insurance (BBI), also known as safe-driver discounts. Discount programs like USAA SafePilot® use telematics to help save you money while developing safer driving habits. SafePilot assesses things like the distance between your car and others, phone usage while driving, and even how smoothly you brake and turn. Once it's time to renew your auto policy, USAA will use the data from SafePilot to determine your discount.

Helping military service members save

At USAA, we're committed to serving the unique needs of the military community. We're expanding our usage-based insurance offering to provide our members with better service and savings, such as lower premiums based on personalized pricing.

USAA offers a usage based program to help drivers save money when they drive less. Monthly premium rates are adjusted based on mileage and other factors. A usage based program policy can be a great option for military service members, especially those who are highly mobile and frequently deployed.

After all, if you're not able to drive your car for several weeks or months of the year, or if you're normally a lower mileage driver, why should you pay the same amount for insurance coverage as someone who's driving every day?

UBI also makes pay-as-you-go pricing possible, which can be an advantage with the military's pay schedule. While typical auto premiums are paid in large installments of three, six or 12 months, drivers who take advantage of UBI programs will usually pay for their coverage monthly. That's much more flexible for many people.

And if you opt into a BBI program, you may qualify for even more savings and discounts. By participating in the SafePilot program and practicing safe driving habits with USAA, you could receive up to 30% off your auto insurance premium.

Ultimately, UBI and BBI programs help you access more personalized pricing for auto coverage and take greater control over your insurance. UBI replaces the one-size-fits-many nature of insurance rates to find a customized premium based on your actions behind the wheel.