Everyone wants to get the best insurance coverage possible for the least amount of money. That’s human nature to want the best deal. But what about an auto insurance policy that costs you less based on your actual driving habits? The lure of considerable savings can’t be denied, but the larger question is: Does usage-based car insurance make sense for you?

Usage-Based Car Insurance – What it Is

First, let’s define what usage-based car insurance actually is. The various programs use telematics in an in-car device that records driving behaviors – distances driven and how brakes are used, for example. The principle is simple: consumers who opt for this type of coverage in exchange for a certain discount will receive that discount based on their driving habits. If they drive less miles and they are a safe driver, they’ll receive more in terms of a discount percentage.

A number of leading auto insurance companies currently offer usage-based insurance (also called UBI), including Allstate’s “Drive Wise,” Progressive’s “Snapshot,” as well as similar programs from The Hartford, State Farm, Travelers and others.

In fact, a recent announcement by Sprint that it intends to work with insurers to set up UBI programs through the carrier’s wireless network means even more auto insurance companies may soon be offering this service. Esurance, owned by Allstate, was Sprint’s first test-run case with policyholders in Arizona and the insurer has recently launched its first UBI program in Texas, based on the success of the pilot.

How Much Can You Save?

Discounts vary from one company to another – and from one customer to another. Allstate’s “Drive Wise” customers get an automatic 10 percent discount just for signing up with the program. From then, discounts are based solely on the driving habits of the policyholder. The safest motorists who drive the fewest miles can see a discount up to 30 percent.

Progressive’s “Snapshot” program also offers discounts up to 30 percent for the safest drivers. State Farm’s “Drive Safe & Save” program offers an immediate 5 percent discount and up to 50 percent discount on renewals. Travelers “IntelliDrive,” currently available in Illinois, Ohio, Oregon and Virginia, offers a 5 percent discount on enrollment and up to 20 percent discount on renewals, based on miles driven.

How far you drive your car is one factor in determining costs for your coverage because car the risk of accidents and car crashes increases with longer distances traveled.

Pros and Cons of UBI

There’s no question that when household budgets are tight and each dollar counts, consumers look for every way to save money. UBI may not necessarily a good deal for every driver, however, and it pays to look at how and where you drive, as well as your driving history, before you decide that this is what you want.

UBI pros:

  • You can save 10 to 30 percent off your insurance premium.
  • You can monitor your driving habits online and this helps you become a safer driver.
  • UBI programs give you more of a sense of control over your car insurance premiums. It’s a proactive approach to saving money on a driving necessity.
  • Tech-savvy drivers can benefit from the latest technology in the industry – and potentially save money in the process.

UBI cons:

  • Long-distance commuters will see less of an incentive – less discount.
  • Some consumers may consider these devices an invasion of privacy, something they’re not willing to give up for a car insurance discount.
  • If you have a bad driving record, you may want to clean that up first before thinking about a UBI program. (You have a lot of bad habits to correct.)

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