Technology

Low Mileage Car Insurance: What is Usage-Based Insurance? (UBI)

Depending on the state you live in and the company you look at, there will be differences in how usage-based insurance works. In most instances, a car insurance company will provide a device you plug into your car. The device can track the miles you drive, the time of day you drive, the braking frequency, and the speed you drive. 

It is up to the car insurance company to decide which factors they want to use. Below is a review of what companies offer a usage-based insurance program and its elements. The most important factor usage-based insurance companies use is how many miles you drive. Usage-based insurance is an excellent way to reward low-mileage drivers and provide an incentive to drive even less.

How Do I Find The Best Low Mileage Car Insurance Company?

If you are driving less than the national average, around 13K per year, there is a good chance you are paying too much for car insurance if you are not participating in usage-based insurance. The companies offering a usage-based program claim savings from 20-50%. How can you find the best company and pricing for usage-based car insurance?

  • State Regulation – Since the state regulates car insurance, you want the usage-based company to have the approval to vary pricing based on miles driven. Below is a sample of usage-based programs offered in the US. The list may change, so it is a good idea to verify directly with the company.
  • Review your annual mileage – Quickly check how many miles you drive in a typical month and multiply by 12. Knowing your required mileage will help you compare car insurance companies on an even field and review the benefit of driving fewer miles. It also makes sense to see if there are other ways to lower your miles. Can you take public transportation, share a ride or work from home more frequently? Would it be worth a couple hundred dollars to cut your mileage down?  How about the additional savings in paying less for gas?  
  • Review Full Coverage Needs – It is a good idea to review coverage levels to ensure they align with your needs.  Maybe the last time you signed up for car insurance, you carried fewer assets and didn’t have as much to protect. In addition, it is an excellent time to see if you can combine insurance policies. Are there multiple cars you need to insure? Do you have a policy for your home? Having your policies with one company will make it easier to track and save money.
  • Select & Compare – Once you have a couple of companies, follow up directly and see which company is a better fit.  Pricing should be a primary factor in your decision. In addition, consider what device will be used to track driving data and the driving information that will be tracked (Miles, braking, speed, time of driving). The review below has details on typical information tracked by different usage-based companies.

How Is Low Mileage Car Insurance Pricing Done?

Each usage-based company will have its discount method for low-mileage drivers. Progressive will ask you to place their tracking device in your car for 30 days and then discount your policy after this period. In addition, they will ask to track your driving data for six months, and after the six months will no longer require to track your driving. 

GMAC will utilize the vehicle diagnostic reports from OnStar and monitor your mileage monthly. Along with the data captured, a usage-based company will combine it with other information, such as your driving record, the car used, and where you live, to come up with your premium.

What happens if there are no usage-based insurance companies in my state? Maybe none are available as you don’t drive a car with OnStar, as this is required in some situations. With the growth in usage-based insure on the spot insurance, chances are good. You will have more options shortly. To benefit as a low mileage driver, pay attention to how companies ask for your mileage. 

When asking for a quote, are you being asked how many miles you drive? Are there only a few choices to select on your mileage, such as more or less than 10K miles a year? Shop around with websites that allow you to put into your exact mileage and don’t work in large bands. An independent website that asks for your mileage is Rodney D Young Insurance.

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