The Complete Guide to Usage-Based Insurance: Save Up to 40% on Car Insurance in 2025

Introduction

Are you still paying for car insurance based on statistics about other drivers instead of your actual driving habits? You could be overpaying by 30% or more. Usage-based insurance (UBI) is revolutionizing how Americans pay for auto coverage and smart drivers are saving an average of $45 monthly, with some slashing premiums by up to 40%.

Whether you’re a cautious driver tired of subsidizing reckless motorists, a remote worker who barely uses your car, or simply looking to cut insurance costs without sacrificing coverage, this complete guide reveals everything you need to know about usage-based insurance programs in 2025.

The Problem: Why Traditional Car Insurance Is Costing You More Than It Should

Traditional auto insurance operates on a fundamentally flawed premise: it prices your coverage based on broad demographic categories rather than your individual behavior. Insurance companies lump you together with thousands of other drivers who share your age, ZIP code, credit score, and vehicle type, then charge you based on how they drive, not how you drive.

This outdated model creates significant problems:

You’re paying for other people’s mistakes. Even if you’re a cautious driver with a perfect record, you’re charged higher premiums simply because other 18-year-olds get into accidents three times more often than older drivers, according to the Insurance Institute for Highway Safety.

Your low mileage doesn’t matter. Drive 5,000 miles per year instead of 15,000? Traditional insurance rarely rewards you proportionally for your reduced road exposure and lower accident risk.

There’s no incentive to improve. Conventional policies offer no real-time feedback or rewards for safe driving habits. You pay the same premium whether you speed constantly or drive like a saint.

The insurance industry has known about these inefficiencies for decades. In fact, the BBC reported on “per-mile cover to cut accidents” back in 2006, yet most Americans still pay based on demographic guesswork rather than actual driving data.

The solution? Usage-based insurance programs that monitor your real driving behavior and reward you accordingly.

What Is Usage-Based Insurance? Understanding the Basics

Usage-based insurance (UBI), also called telematics insurance, pay-as-you-drive (PAYD), or pay-as-you-go insurance, uses technology to track how, when, and how much you drive. Instead of relying on demographic assumptions, UBI programs collect actual data about your driving patterns and adjust your premiums based on your individual risk profile.

The concept isn’t new. Progressive and GMAC first experimented with GPS-based UBI in 1997. By 2004, Progressive launched TripSense in Minnesota, the first UBI program based on annual distance and driving hours. However, UBI truly exploded in the mid-2010s with the emergence of smartphone telematics, making monitoring accessible to millions of drivers.

Today, the usage-based insurance market is booming. According to Allied Market Research, the UBI market was valued at $28.7 billion in 2019 and is projected to reach $142 billion by 2027, a five-fold increase driven by technology advances and consumer demand for personalized pricing.

How Usage-Based Insurance Works

UBI programs track your driving through one of three primary methods:

1. Smartphone apps that run in the background using your phone’s sensors
2. Plug-in devices that connect to your car’s OBD-II diagnostic port (standard on vehicles built after 1996)
3. Built-in vehicle systems like OnStar or SYNC that communicate directly with insurers

These telematics devices collect data on various driving behaviors:

• Mileage driven (miles or kilometers)
• Driving time (minutes or hours behind the wheel)
• Time of day (day vs. night driving, rush hour traffic)
• Speed and acceleration (harsh braking, rapid acceleration)
• Phone usage (distracted driving detection)
• Cornering (how sharply you turn)

Your insurer analyzes this data to calculate your driving score and adjust your premium accordingly. Safe drivers with good scores earn significant discounts, while risky behaviors may result in smaller discounts or, with some programs, rate increases.

The Two Main Types of Usage-Based Insurance Programs

Not all UBI programs are created equal. Understanding the difference between the two primary types helps you choose the right program for your driving style and avoid accidentally increasing your premiums.

Pay-As-You-Go (PAYG) / Pay-Per-Mile Insurance

Best for: Low-mileage drivers, remote workers, retirees, high-risk drivers with good control

Pay-as-you-go insurance (also called pay-per-mile or PAYD) charges you based primarily on how much you drive, not how you drive. The pricing structure typically includes:

• Fixed daily or monthly base rate: Around $1.50 per day
• Per-mile charge: Typically 5-6 cents per mile driven

The philosophy is simple: a car in the garage gets in fewer accidents than a car on the road. If you drive less than 8,000-10,000 miles annually, pay-per-mile insurance often delivers the best savings.

Key advantage: Your driving habits don’t significantly impact your rate. Speed up a little? Drive at night? PAYG programs generally don’t penalize you for these behaviors; they simply count your miles.

Real-world example: Allstate Milewise charges approximately $1.50 per day plus six cents per mile. A driver covering just 5,000 miles annually would pay roughly $850 total ($547.50 base + $300 mileage), compared to the national average of $2,008 for full coverage.

Some innovative insurers like Flitter and Mile Auto take an even simpler approach: they ask customers to photograph their odometer at subscription and renewal rather than using continuous tracking. This ultra-low-tech solution maximizes privacy but eliminates connected services like crash detection.

Pay-How-You-Drive (PHYD) Insurance

Best for: Safe, defensive drivers who want rewards for good habits

Pay-how-you-drive insurance evaluates your actual driving behaviors beyond just mileage. PHYD programs track:

• Hard braking and sudden acceleration
• Speeding and cornering habits
• Time of day (night driving typically increases rates)
• Phone usage while driving
• Smooth, defensive driving patterns

Your driving score directly impacts your discount. Most drivers earn 5-12% savings, though exceptional drivers can save up to 40% with programs like Nationwide SmartRide.

Key advantage: If you’re a genuinely safe driver, PHYD programs reward you with substantial, ongoing discounts that compound over time.

Important warning: Unlike PAYG programs, some PHYD plans will increase your rates for poor driving habits. Progressive Snapshot, for instance, can raise premiums by up to 10% for drivers with consistently risky behaviors.

Top Usage-Based Insurance Programs in 2025: Detailed Comparison

Major insurers now offer UBI programs with varying features, discounts, and tracking methods. Here’s your comprehensive comparison of the leading programs available to American drivers:

Usage-Based Insurance Provider Comparison

Program Highlights and Considerations

Nationwide SmartRide offers the largest potential discount at 40% and won’t increase rates for poor driving; you simply earn a smaller discount. This makes it ideal for drivers who want to test UBI without rate-increase risk.

Progressive Snapshot is widely available and user-friendly, but beware: it’s one of the few programs that can increase your premium by up to 10% for consistently risky driving behaviors.

State Farm Drive Safe & Save won’t raise rates for bad habits, but you’ll lose any low-mileage discounts if tracked driving more than 7,500 miles annually, a concern for moderate-mileage drivers.

Allstate offers both PAYG and PHYD options, giving you flexibility to choose based on your driving patterns. Drivewise includes crash detection and roadside assistance features through the app.

Farmers Signal stands out with CrashAssist technology that automatically detects accidents and alerts emergency services based on crash severity data, potentially life-saving for solo drivers.

American Family MilesMyWay requires only odometer photos (no tracking) for drivers under 8,000 miles annually, making it the most privacy-friendly option for qualifying low-mileage drivers.

How Telematics Technology Tracks Your Driving

Understanding exactly how insurers collect your driving data helps you make informed decisions about privacy, accuracy, and which technology works best for your situation.

The Three Telematics Technologies

1. Smartphone Telematics Apps

Since 2015, mobile telematics has become the dominant UBI technology, preferred by insurers for several compelling reasons:

• Scalability: Software-based solutions cost insurers far less than hardware devices
• Universal compatibility: Works with any vehicle, regardless of age, make, or model
• Simple logistics: Policyholders simply download an app; no shipping or installation required
• High data quality: Modern smartphones contain sophisticated sensors (GPS, accelerometer, gyroscope) that provide accurate driving data
• Distracted driving detection: Only smartphone apps can monitor phone usage while driving, helping address one of the leading causes of accidents

Leading U.S. insurers, including Progressive, State Farm, and Allstate, have successfully deployed smartphone-based programs serving millions of drivers. According to DriveQuant, a European telematics provider, the technology has been thoroughly validated for reliability and accuracy.

Privacy note: Most apps run in the background and automatically detect when you’re driving. You can typically log in as a passenger if someone else is driving your car to avoid impacting your score.

2. Plug-In OBD Devices

OBD (On-Board Diagnostics) dongles plug into your car’s diagnostic port, the same port mechanics use to read error codes. These devices were the original UBI technology and offer:

• Direct vehicle data: Connect to your car’s computer system for accurate speed, mileage, and engine data
• No battery drain: Don’t rely on your phone’s battery
• Works without smartphones: Ideal if you don’t have or don’t want to use a smartphone

However, OBD devices face challenges:

• Hardware costs: Expensive to manufacture and ship
• Installation required: Must be physically installed (though it’s usually simple)
• Limited to newer vehicles: Only works with cars built after 1996 with OBD-II ports
• Can’t detect distracted driving: No way to monitor phone usage

Liberty Mutual RightTrack uses plug-in devices, as does Nationwide SmartRide (though they also offer an app option).

3. Connected Car Systems (OnStar, SYNC)

Built-in vehicle communication platforms like GM’s OnStar and Ford’s SYNC transmit driving data directly to insurers:

• Highest data quality: Factory-installed systems provide exceptionally accurate information
• No additional devices: Already built into your vehicle
• Seamless integration: Works automatically without driver action

The major limitation? Only newer vehicles have these systems, excluding millions of older cars. Additionally, vehicle data isn’t yet standardized across manufacturers, and automakers charge insurers premium prices for data access, costs that can be passed to consumers.

State Farm’s Drive Safe & Save integrates with OnStar and SYNC, making it convenient for eligible vehicle owners.

The Real Math: How Much Can You Actually Save?

Marketing promises of “up to 40% savings” sound impressive, but what do real drivers actually save? Let’s break down the numbers.

Average Savings by Driver Type

According to Schimri Yoyo, a licensed agent and financial advisor, “The average driver saves around 5%, or $45 monthly, with UBI. Safer drivers save about 12%, while low-mileage drivers often get the best rates.”

Here’s what that means in real dollars based on the national average of $2,008 annually for full coverage:

Real-World Example: Low-Mileage Driver

Consider Maria, a San Jose resident who works from home and drives approximately 6,000 miles per year. Her traditional full coverage policy costs $2,400 annually (California rates run higher than the national average).

With Allstate Milewise (PAYG):

• Base rate: $1.50/day × 365 days = $547.50
• Mileage: 6,000 miles × $0.06 = $360
• Total annual cost: $907.50
• Annual savings: $1,492.50 (62% reduction)

Real-World Example: Safe High-Mileage Driver

Now consider James, who commutes 15,000 miles annually but drives extremely safely, with no speeding, smooth braking, and daytime driving only.

With Nationwide SmartRide (PHYD):

• Traditional full coverage: $2,008/year
• SmartRide discount: 30% for excellent driving score
• New annual cost: $1,405.60
• Annual savings: $602.40

The Participation Discount Advantage

Many UBI programs offer an immediate discount just for enrolling, regardless of your driving:

• Nationwide SmartRide: 10% instant discount
• Liberty Mutual RightTrack: 15% enrollment discount
• Progressive Snapshot: 10% participation discount
• State Farm Drive Safe & Save: 5% immediate discount

This means you start saving from day one, with additional discounts applied at your six-month or annual renewal based on your actual driving performance.

Expert insight: “Safe drivers, especially teens and those in high-risk categories, can lower their rates by allowing insurers to track their good driving habits and provide discounts,” notes Dani Best, Licensed Insurance Producer.

What Affects Your Usage-Based Insurance Score and Discount

Understanding which behaviors impact your UBI score helps you maximize your savings and avoid unexpected rate increases.

Factors That Improve Your Score

Smooth, predictable driving: Gradual acceleration and braking indicate defensive driving and score highest in most programs.

Daylight driving: The risk of a fatal crash is three times higher at night, so daytime driving significantly boosts your score.

Low mileage: Less time on the road means fewer accident opportunities. Most programs reward driving under 10,000 miles annually.

Hands-free phone use: Keeping your phone in your pocket or using hands-free features prevents distracted driving penalties.

Consistent safe habits: UBI programs track trends over time. Consistent safe driving earns better discounts than sporadic good behavior.

Off-peak driving: Avoiding rush hour traffic when possible reduces your exposure to high-risk driving conditions.

Factors That Hurt Your Score

Hard braking: Frequent sudden stops suggest you’re following too closely, not anticipating traffic, or driving distracted.

Rapid acceleration: Jackrabbit starts indicate aggressive driving and wasted fuel.

Speeding: Driving over posted limits is a primary accident risk factor and significantly impacts most PHYD programs.

Night driving: Driving between midnight and 4 a.m. typically results in score penalties due to increased accident risk.

Phone usage while driving: Texting, browsing, or even holding your phone triggers penalties in programs that monitor distraction.

Sharp cornering: Taking turns too quickly suggests aggressive driving or lack of attention to road conditions.

Tips to Maximize Your UBI Discount

1. Drive like someone’s always watching, because they are. Make every trip count toward building your safe driving record.
2. Anticipate traffic flow. Look far ahead and begin slowing early rather than braking hard at the last moment.
3. Put your phone away. Store it in the glove box or use a mount with voice commands to avoid distracted driving penalties.
4. Plan errands strategically. Combine trips to reduce overall mileage and minimize driving during high-risk hours.
5. Check your score regularly. Most UBI apps provide trip-by-trip feedback. Review it to identify and correct problematic patterns.
6. Communicate with your insurer. If you believe your score doesn’t reflect your actual driving (common with app-based programs that can’t always distinguish between driver and passenger), contact customer service.

The Privacy Question: What Data Do Insurers Actually Collect and Share?

Privacy concerns represent the biggest hesitation for drivers considering UBI. Let’s address this directly with facts about what data is collected, how it’s used, and what protections exist.

What Data UBI Programs Collect

Always collected:

• Date and time of trips
• Trip duration and distance
• Speed (acceleration and braking patterns)
• GPS location data (route information)

Sometimes collected:

• Phone usage (calls, texts, app use while driving)
• Cornering forces
• Idle time
• Specific addresses (start/end points)

Never collected by legitimate insurers:

• Audio recordings from inside your vehicle
• Video footage (unless you separately install a dashcam)
• Personal conversations or communications content
• Browsing history unrelated to driving

What Insurers Do With Your Data

Primary use: Calculating your driving score and adjusting premiums accordingly.

Secondary uses:

• Fraud detection (verifying accident claims match driving data)
• Accident investigation (determining fault based on speed, braking, impact force)
• Stolen vehicle recovery (GPS tracking for law enforcement)
• Product improvement (aggregate data to refine scoring algorithms)

Important clarification: According to industry research, insurance companies do not currently sell driver information directly to third parties. However, data aggregators like LexisNexis may have access to your information through insurance industry databases to study trends related to vehicle theft, fraud, and coverage.

Your Privacy Protections

You control enrollment: UBI programs are always opt-in. You decide whether the savings justify the data sharing.

You can opt out: Most programs allow cancellation, though timing and consequences vary by insurer. Some require completing an evaluation period before applying or removing discounts.

Location tracking can be limited: Metromile and some other pay-per-mile programs allow you to turn off GPS location tracking while still monitoring mileage.

Data access is restricted: Allstate explicitly states that personal driver data is not available to insurance agents handling your policy, creating a privacy barrier.

Legal protections apply: Insurance companies must comply with state and federal privacy laws. They cannot share your data without permission except in specific legal circumstances (warrants, court orders).

Defensive Uses of UBI Data

Your telematics data can actually protect you:

Fight wrongful tickets: GPS and speed data can help contest speeding tickets if you believe they’re incorrect.

Prove you weren’t at fault: In accidents where another driver claims you caused the collision, your telematics data provides objective evidence.

Defend against hit-and-run accusations: Location tracking proves where you were and weren’t at specific times.

Support insurance claims: If you file a claim and the other party disputes the facts, your driving data provides supporting evidence.

Bottom line on privacy: Yes, you’re sharing driving data with your insurer. But you’re likely already sharing comparable or more detailed location and behavior data with Google Maps, social media apps, and your phone carrier. The question is whether the potential savings of $240-$800 annually justify the specific data sharing required for UBI.

READ ALSO: 15 Hidden Discounts Your Auto Insurance Company Doesn’t Tell You About

The Pros and Cons of Usage-Based Insurance: An Honest Assessment

Like any insurance product, UBI delivers significant benefits for some drivers while creating challenges for others. Here’s an unvarnished look at both sides.

Major Advantages of Usage-Based Insurance

1. Substantial savings for good drivers

This is the headline benefit: drivers with safe habits and low mileage can save hundreds or even thousands of dollars annually. Unlike traditional insurance that prices everyone in your demographic the same, UBI rewards your individual responsibility.

2. Immediate feedback improves driving habits

A University of British Columbia study of 30,000 motorists found that drivers who installed tracking devices developed safer driving habits within 6-8 weeks. The real-time scoring and feedback create powerful behavioral incentives that make roads safer for everyone.

3. Fairer pricing overall

Why should a cautious 19-year-old driver pay the same premium as their reckless classmate? UBI breaks down demographic stereotypes and lets individual behavior determine rates, a fundamentally more equitable approach.

4. Crash detection and emergency response

Many UBI programs include automatic crash detection that alerts emergency services when sensors detect a serious collision. This feature can literally save lives, especially for drivers who travel alone or in remote areas.

5. Stolen vehicle recovery

GPS tracking means your insurer (and law enforcement) can pinpoint your car’s location if it’s stolen, dramatically improving recovery rates.

6. Transparency builds trust

UBI creates a two-way dialogue about risk. You see exactly how your driving affects your rates, and insurers gain accurate data instead of making demographic assumptions. This transparency can strengthen the insurer-policyholder relationship.

Significant Disadvantages to Consider

1. Potential rate increases with some programs

While many UBI plans only reduce your discount for poor driving, some programs actively raise your base rates. Progressive Snapshot can increase premiums up to 10% for consistently risky behaviors. If you’re not confident in your driving habits, verify that your chosen program won’t penalize you beyond reducing discounts.

2. Privacy trade-off

You’re exchanging detailed driving data for lower premiums. If your vehicle use patterns, locations visited, and driving habits feel too personal to share, UBI may not align with your values.

3. Inaccurate scoring concerns

Telematics devices can’t distinguish between defensive driving and reckless behavior in every situation. Hard braking to avoid a child running into the street appears identical to hard braking from tailgating. Passenger mode sometimes fails to activate, causing penalties for someone else’s driving.

4. Not ideal for certain driving patterns

Night shift workers, urban commuters facing constant stop-and-go traffic, and anyone regularly driving in challenging conditions may score poorly despite being safe, attentive drivers.

5. Potential cybersecurity risks

Any system collecting and transmitting data faces potential breach risks. While insurers implement security measures, no system is completely invulnerable to sophisticated cyberattacks.

6. Complexity with multiple drivers

If several family members drive your vehicle, the device records everyone’s habits. One person’s risky driving can impact your discount, even if you personally drive safely.

7. Switching insurers can be complicated

Different companies use different telematics platforms. Switching insurers might require removing one device and installing another or downloading a new app and going through another evaluation period.

Is Usage-Based Insurance Right for You? Take This Quick Assessment

Not sure whether UBI makes sense for your situation? Answer these four questions to determine if usage-based insurance could reduce your premiums:

Question 1: How Many Miles Do You Drive Annually?

A. Under 10,000 miles: You’re an ideal candidate for PAYG insurance. With average Americans driving 13,000+ miles yearly, your low mileage means significantly reduced accident exposure. Pay-per-mile programs could cut your premiums by 40-60%.

B. 10,000-13,000 miles: You could benefit from either PAYG or PHYD programs depending on your driving habits. Compare both types to find the best savings.

C. Over 15,000 miles: Pay-per-mile insurance likely won’t save you money. Focus on PHYD programs that reward safe driving habits regardless of mileage, or stick with traditional insurance that offers low-mileage alternatives.

Question 2: How Would You Rate Your Driving Habits?

A. Very safe, I follow speed limits, brake gently, and avoid distractions: PHYD programs were designed for you. Expect to earn the maximum discounts of 25-40%.

B. Generally safe with occasional lapses: You’ll likely save with UBI, though perhaps 10-15% rather than the maximum discount. Choose programs that won’t increase rates for minor infractions.

C. I’ve had recent accidents, tickets, or drive aggressively: Traditional insurance might be more cost-effective. Alternatively, consider PAYG programs that don’t penalize driving style, only mileage.

Question 3: When Do You Typically Drive?

A. Primarily during daylight hours and off-peak times: Perfect for PHYD programs that reward low-risk driving schedules.

B. Mix of daytime and some evening driving: UBI can still work well, though your discount might be slightly reduced.

C. Primarily at night or during morning/evening rush hour: Night driving (especially midnight-4 a.m.) and heavy traffic significantly reduce PHYD scores. Evaluate whether other factors outweigh this disadvantage, or consider PAYG alternatives.

D. I work night shifts regularly: Look specifically for programs that don’t heavily penalize night driving, or opt for PAYG insurance that only counts miles.

Question 4: How Comfortable Are You Sharing Driving Data?

A. Very comfortable, I want feedback to improve my driving: You’ll appreciate the real-time scoring and insights most UBI apps provide.

B. Somewhat comfortable if it saves money: Standard UBI programs should work fine. Review each program’s privacy policy and choose one whose data practices you trust.

C. Not comfortable with detailed tracking: Consider programs like American Family MilesMyWay that only require odometer photos, or stick with traditional insurance.

Your UBI Recommendation

Mostly A answers: You’re an ideal UBI candidate. Start comparing PHYD programs from Nationwide, Allstate, State Farm, or Farmers to maximize savings.

Mix of A and B answers: UBI will likely save you money. Compare both PAYG and PHYD options to determine which delivers better savings for your specific situation.

Mostly C answers: Traditional insurance or basic PAYG programs (if low-mileage) may work better than behavior-based UBI programs.

Chose C for Question 4: Consider privacy-friendly alternatives or traditional policies with good-driver discounts that don’t require tracking.

How to Choose and Enroll in a Usage-Based Insurance Program

Ready to start saving? Follow this step-by-step process to select the right UBI program and maximize your discount from day one.

Step 1: Compare Multiple Insurers

Don’t assume your current insurer offers the best UBI program. Rate structures, maximum discounts, and program features vary dramatically. Request quotes from at least 3-5 providers offering UBI, including:

• Your current insurer (check if they offer UBI)
• Companies known for competitive UBI programs (Nationwide, Progressive, State Farm)
• Specialty UBI insurers if you’re very low-mileage (Lemonade, Mile Auto)

Pro tip: When requesting quotes, ask specifically about:

• Maximum possible discount
• Whether rates can increase or only discounts decrease
• Evaluation period length before discounts apply
• Participation discount amount
• Which behaviors are tracked and weighted

Step 2: Understand the Program Rules Before Enrolling

Read the fine print carefully. Critical questions to ask:

What’s the enrollment period? Some programs require 30-90 days of monitoring before applying discounts. Others provide instant participation discounts.

Can you opt out penalty-free? Understand whether you can cancel the program if you’re unhappy and whether there’s a minimum participation period.

Will rates increase? Some programs only reduce your discount for poor driving, while others can raise your base rates. Know which type you’re enrolling in.

How are discounts applied? Monthly, at six-month intervals, or at annual renewal? This affects how quickly you see savings.

What happens with multiple drivers? If others drive your vehicle, understand how their habits impact your score.

Step 3: Download the App or Install the Device

Most modern programs use smartphone apps:

1. Download your insurer’s UBI app from the App Store or Google Play
2. Grant necessary permissions (location, motion sensors)
3. Set up your profile and enable automatic trip detection
4. Test the passenger mode feature if available

For plug-in devices:

1. Locate your vehicle’s OBD-II port (usually below the steering wheel, near the pedals)
2. Plug in the device firmly; you should hear a click
3. Verify the device powers on (usually indicated by a light)
4. Complete any required setup through your insurer’s website or app

Step 4: Optimize Your Driving From Day One

Remember: programs typically evaluate your first 30-90 days carefully to establish your baseline score. Make those early miles count:

• Drive cautiously and defensively
• Minimize night driving if possible
• Keep your phone stored away
• Brake gradually and accelerate smoothly
• Plan routes to avoid rush hour when practical

Step 5: Monitor Your Score and Adjust

Check your UBI app regularly (weekly during evaluation periods):

• Review trip-by-trip scores to identify patterns
• Look for specific behaviors flagged as problematic
• Celebrate improvements to stay motivated
• Contact customer service about questionable scores

Important: If you notice incorrect passenger trips counting against you, document them and contact your insurer. Most companies will adjust scores for verified passenger trips.

Step 6: Evaluate at Renewal

When your policy renews and final discounts apply, assess whether UBI delivered the expected savings:

If yes: Continue the program and enjoy your reduced premiums. Your driving score often improves over time as habits solidify.

If no: Contact your insurer to discuss why savings were lower than expected. You might be able to adjust specific behaviors to improve your score, or you may determine that UBI isn’t the right fit and revert to traditional pricing.

Common Mistakes to Avoid With Usage-Based Insurance

Learn from others’ experiences by avoiding these frequent UBI pitfalls:

Mistake 1: Not Understanding Whether Your Rates Can Increase

The problem: Some drivers assume UBI can only reduce their premiums, then face unpleasant surprises when poor driving actually raises rates.

The solution: Before enrolling, explicitly ask whether the program can increase your base premium or only affects discount eligibility. Programs like Progressive Snapshot can raise rates up to 10%, while Nationwide SmartRide never increases your base premium; you simply earn a smaller discount.

Mistake 2: Enrolling in the Wrong Type of Program

The problem: A high-mileage safe driver enrolls in PAYG insurance and pays more than traditional coverage. Or a low-mileage but occasionally aggressive driver chooses PHYD and gets penalized for driving style despite rarely using the car.

The solution: Match the program type to your actual driving profile:

• Low mileage (under 10,000 miles/year) = PAYG/pay-per-mile
• High mileage but safe habits = PHYD programs
• Low mileage AND safe habits = either works, but compare both

Mistake 3: Forgetting to Enable Passenger Mode

The problem: You’re riding with an aggressive driver, but the app logs the trip as your driving, tanking your score unfairly.

The solution: Most apps include passenger mode; activate it BEFORE the trip starts. If you forget and a bad trip gets logged, document it and contact customer service immediately. Many insurers will remove verified passenger trips from your score.

Mistake 4: Not Monitoring Your Score During the Evaluation Period

The problem: Drivers ignore their score for months, then discover at renewal that poor habits they could have corrected resulted in minimal savings.

The solution: Check your app at least weekly during the first 90 days. Most programs provide trip-by-trip feedback that highlights specific issues. Addressing problems early maximizes your final discount.

Mistake 5: Assuming All Family Members Drive Safely

The problem: You enroll in UBI confident in your own driving, but your teenager or spouse has aggressive habits that destroy your score.

The solution: Before enrolling, discuss expectations with everyone who drives the vehicle. Consider:

• Choosing a program that won’t increase rates, only reduce discounts
• Having different drivers practice safe habits before enrolling
• Potentially excluding certain drivers from using that vehicle during evaluation periods
• Selecting PAYG programs if family members’ driving styles vary significantly

Mistake 6: Not Reading the Data Privacy Policy

The problem: You’re uncomfortable with the amount or type of data being collected but didn’t research it before enrolling.

The solution: Review each program’s privacy policy before signing up. Key questions:

• Can you disable GPS location tracking?
• What data is shared with third parties?
• How long is data retained?
• Can you request data deletion if you cancel?

Mistake 7: Expecting Maximum Discounts Immediately

The problem: Marketing materials advertise “up to 40% savings,” leading to unrealistic expectations when you receive a 15% discount.

The solution: Understand that maximum discounts represent best-case scenarios for exceptionally safe, low-mileage drivers. According to industry experts, most drivers save 5-12% in practice. Set realistic expectations based on your honest assessment of your driving habits.

Mistake 8: Not Considering Your Commute Pattern

The problem: Urban drivers with unavoidable stop-and-go traffic get penalized for hard braking that’s actually defensive driving in congested conditions.

The solution: If you regularly drive in heavy traffic, ask your insurer how their scoring algorithm handles urban driving. Some programs account for these conditions better than others. Drivers with challenging commutes might find PAYG programs more suitable.

Mistake 9: Keeping UBI Active After Your Driving Patterns Change

The problem: Your situation changes; you take a job with a long commute, start working night shifts, or begin using your car for rideshare but you forget to reassess whether UBI still makes sense.

The solution: Reevaluate your UBI enrollment annually or whenever your driving patterns significantly change. What saved money last year might cost extra now.

Frequently Asked Questions About Usage-Based Insurance

How much does usage-based insurance really save?

Most drivers save between 5% and 12%, or approximately $100-$240 annually. Exceptionally safe drivers or very low-mileage drivers can save 25-40% ($500-$800+ annually). The average savings is around $45 per month, according to licensed insurance experts, though actual savings depend on your driving habits, mileage, chosen program, and base premium.

Can usage-based insurance increase my rates?

Yes, but only with certain programs. Progressive Snapshot can increase premiums by up to 10% for consistently risky driving. Liberty Mutual RightTrack and Travelers IntelliDrive also may increase rates. However, many programs like Nationwide SmartRide, Allstate Drivewise, and State Farm Drive Safe & Save will not raise your base rates; they only reduce the discount you earn. Always verify your program’s policy before enrolling.

What happens to my UBI discount if I switch insurance companies?

Your UBI discount does not transfer between insurers. Each company has its own telematics program with different scoring algorithms and evaluation periods. If you switch insurers, you’ll need to:

1. Complete a new evaluation period (typically 30-90 days)
2. Use the new company’s tracking device or app
3. Rebuild your driving score from scratch

Your previous insurer’s data and scores won’t follow you, though your general driving record (accidents, tickets) remains part of your insurance history.

Does usage-based insurance work with older cars?

Yes. Smartphone-based UBI programs work with any vehicle regardless of age. The app tracks your phone’s movement, not the car’s data. Plug-in device programs require an OBD-II diagnostic port, which became standard in 1996. Vehicles manufactured before 1996 typically aren’t compatible with plug-in devices, but smartphone apps still work perfectly.

Will my insurance company track everywhere I go?

Most UBI programs collect GPS location data, but how they use it varies:

• PHYD programs typically use location to verify you’re actually driving (not a passenger) and to understand driving contexts, but don’t track specific destinations
• PAYG programs may track locations to calculate mileage accurately
• Some programs like Metromile allow you to disable GPS tracking while still monitoring mileage

Progressive explicitly states that location data is used for research and development but NOT for rate calculations. Check your specific program’s policy regarding location tracking and usage.

Can I use UBI if I have a bad driving record?

Yes, though your benefits vary by program type:

• PAYG/pay-per-mile programs don’t heavily weight driving style, making them viable for high-risk drivers who drive infrequently
• PHYD programs offer a chance to prove you’ve reformed your habits, potentially earning discounts despite past issues
• Traditional insurance with good-driver discounts might be more cost-effective if you can’t consistently demonstrate safe habits

Your existing driving record (tickets, accidents) still affects your base rate; UBI simply offers a way to improve from there based on current behavior.

What if I don’t have a smartphone?

Several options exist:

1. Plug-in devices: Liberty Mutual RightTrack and other programs offer OBD dongles that don’t require smartphones
2. Odometer-based programs: American Family MilesMyWay and Mile Auto use odometer readings instead of continuous tracking
3. Built-in systems: State Farm Drive Safe & Save works with OnStar and SYNC if your vehicle has these features

However, smartphone apps have become the industry standard due to their convenience and capabilities, so your options may be somewhat limited without one.

Does UBI cover all types of auto insurance coverage?

Yes. UBI affects how your premium is calculated, not what coverage types you can purchase. You can get:

• Minimum state-required liability coverage
• Full coverage (comprehensive + collision)
• Optional coverages like roadside assistance, rental reimbursement, gap insurance
• Add-ons like rideshare coverage (State Farm offers UBI with rideshare policies)

The telematics component simply adjusts your premium based on driving data; all the standard coverage options remain available.

How long does the evaluation period last?

Evaluation periods vary by insurer:

• 30 days: Some programs like Geico DriveEasy
• 60 days: Common minimum period
• 90 days: Standard for many programs, including Liberty Mutual RightTrack
• 6 months: State Farm and others wait until policy renewal
• Continuous: Programs like Farmers Signal provide monthly score updates

Many insurers offer participation discounts immediately (5-15%), with additional discounts applied after the evaluation period.

Can I opt out of usage-based insurance if I change my mind?

Generally yes, but consequences vary:

• No penalty programs: Some insurers let you cancel anytime and revert to traditional pricing
• Evaluation commitment: Others require completing an initial evaluation period (30-90 days)
• Discount forfeiture: You’ll lose any earned discounts if you cancel
• No retroactive charges: You won’t be charged retroactively for the period you participated

Read your program’s terms carefully before enrolling to understand cancellation policies. Nationwide and Allstate offer relatively flexible opt-out provisions.

Is my driving data really private and secure?

Insurers implement security measures to protect telematics data, but no system is perfectly secure:

What’s protected:

• Insurance companies must comply with state and federal privacy laws
• Data is typically encrypted during transmission
• Access is restricted to specific personnel and purposes
• Companies don’t sell data directly to third parties (though data aggregators may have access)

Potential concerns:

• Data breaches are possible with any connected system
• Aggregated data may be shared for industry research
• Law enforcement can access data with warrants
• Data remains with insurers even after you cancel

Weigh these privacy considerations against potential savings. If data privacy is paramount, consider odometer-based programs or traditional insurance.

What happens if there’s a dispute about my driving score?

If you believe your score is inaccurate:

1. Document the issue: Note specific trips, dates, and circumstances
2. Contact customer service: Call your insurer’s UBI support line (not general customer service)
3. Request a review: Ask them to examine the specific trip data
4. Provide evidence: Dash footage, passenger confirmation, or other supporting information
5. Escalate if necessary: Request supervisor review or file a formal complaint

Common successful disputes include passenger trips incorrectly logged as driver trips and scores impacted by evasive maneuvers to avoid accidents.

Does UBI work for business vehicles or rideshare drivers?

Business vehicles: Most personal UBI programs explicitly exclude business use. Commercial auto insurance typically doesn’t offer UBI yet, though this is changing. Using a personal UBI policy for business driving violates your policy terms and could result in claim denials.

Rideshare drivers: Standard UBI programs don’t cover rideshare activity (Uber, Lyft). However, State Farm offers specialized rideshare policies that work with Drive Safe & Save. Most rideshare drivers need hybrid policies (personal + rideshare endorsement) and should verify UBI compatibility.

Will UBI help my teenager get cheaper insurance?

Yes, potentially significantly. Teen drivers face extremely high premiums due to statistics showing they get into three times more fatal accidents than drivers over 20. UBI lets responsible teens prove they’re safer than average, earning substantial discounts.

Best programs for teens:

• Allstate Drivewise: Up to 40% discount with no rate increases
• Nationwide SmartRide: 40% maximum discount, won’t raise base rates
• State Farm Drive Safe & Save: Good balance of savings without penalty risk

Important consideration: Ensure your teen understands that every trip counts. One night of risky driving with friends can significantly impact the family’s insurance costs for six months.

Can I use multiple UBI programs with different insurers?

No. UBI is tied to your specific policy with one insurer. You can’t enroll in programs with multiple companies simultaneously for the same vehicle. However, if you have multiple vehicles insured with different companies, you could theoretically use different UBI programs for different cars, though this creates unnecessary complexity.

Take Action: Start Saving on Car Insurance Today

Usage-based insurance represents a fundamental shift in how Americans pay for auto coverage, from demographic stereotypes to individual behavior, from opaque pricing to transparent scoring, and from one-size-fits-all to truly personalized premiums.

If you drive safely, drive infrequently, or simply believe your rates should reflect your actual risk rather than statistical averages, UBI offers a compelling opportunity to cut insurance costs by hundreds of dollars annually.

The market momentum is undeniable: from $28.7 billion in 2019 to a projected $142 billion by 2027, usage-based insurance is rapidly becoming mainstream. Early adopters who enroll now establish safe driving scores that compound into long-term savings.

Your Next Steps

1. Calculate your potential savings: Use your annual mileage and honest driving self-assessment to estimate whether PAYG or PHYD programs offer better savings.

2. Compare at least 3-5 insurers: Don’t settle for your current company’s program without shopping around. Rate structures and maximum discounts vary dramatically.

3. Ask the right questions:

• Can my rates increase or only discounts decrease?
• What’s the participation discount?
• How long is the evaluation period?
• Which specific behaviors are tracked?
• What’s the cancellation policy?

4. Start with a program that won’t increase rates: If you’re uncertain about your driving habits, choose programs like Nationwide SmartRide or Allstate Drivewise that only reduce discounts for poor driving rather than raising base premiums.

5. Commit to safe driving during evaluation: Your first 30-90 days establish your baseline score. Make every trip count by driving defensively, avoiding phone use, and planning routes strategically.

The Bottom Line

Insurance rates are changing daily based on countless factors beyond your control. What you can control is proving that you’re a safer, lower-risk driver than the demographic averages suggest. Usage-based insurance gives you that opportunity.

Whether you save $100 annually or $1,000 depends on your individual circumstances, but one thing is certain: you’ll never know your potential savings without exploring your options.

Don’t wait for your next renewal to start saving. Compare usage-based insurance quotes today and discover what your safe driving habits are really worth.

In another related article, Travelers Auto Insurance Guide