Use Your Driving Habits to Your Advantage with Usage-Based Insurance
Over the last few years, usage-based insurance (UBI) has become more popular and more widely available. UBI uses data collected on your driving patterns as the basis for determining your car insurance rates. Is this an example of data collection that can actually help us? Can usage-based car insurance really help save you money or does it really change anything at all? Those aren’t easy questions to answer as it depends a lot on where you live, and how you drive. But as insurance experts, we’re willing to give it a try and fill you in on some of the considerations to help you better understand usage-based insurance and whether you should switch to it.
Stop Paying For for Bad Drivers
Usage-based insurance differs from traditional insurance where rates are determined by your past driving record. If you are considered a ‘safe’ driver, and you have a clean record with no infractions and no claims to prove it, then principles of traditional insurance, your rates should be lower. However, there is a generally accepted notion that, overall, the good drivers are always subsidizing the bad ones to some degree, in part, to take into account that even if your record is good, you share the road with some bad apples. So now that technology has enabled it, insurance companies can monitor your driving habits, almost in real-time, and can reward you for truly exhibiting safe driving behaviors with discounts or lower rates while the bad drivers miss out.
Different Types of Usage-Based Insurance
There are three types of usage-based insurance. The simplest one is based on the odometer reading of your car. If you don’t drive a lot, you can reap the benefits of slightly discounted rates, and you aren’t required to share a lot of detailed information about where you are going and when. The second is based on data collected by an insurance provider’s app on your phone. This could include reporting location data of where you traveled from your GPS and the amount of time spent driving. The third method takes data straight from the car’s onboard computer, including the time of day and speed info, driving actions, and the distance traveled on each trip. The insurance provider may also take into account the historic risk of the neighborhoods or roads you frequently travel. If all of that sounds too much like Big Brother for you, consider that the information is being collected anyway, You may as well use it to your advantage.
The Benefits
In most states, insurance providers are prevented from using UBI data to penalize you based on the information collected and can only reward you for good habits. This is good news for drivers who often work from home, or get to work by other means than driving. It’s also good for drivers who want lower insurance rates now, based on their current patterns rather than on past history—especially if you’ve recently taken a hit from an accident or infraction. The benefit to insurance companies is that they can get a more accurate assessment of your risk level. A benefit to society could be that UBI eventually discourages unnecessary driving, and causes a shift in the way people think about driving which would be good for the environment. Time will tell!
Comparing Apples to Grapefruit
If there is a downside to UBI (other than privacy concerns) it is that because of the variability of UBI policies and the types of data they use, it is difficult to shop around for competitive prices. So far, it has been difficult for insurance companies to be transparent about which driving habits will impact your costs and by how much. Your best bet is to talk about UBI with an insurance broker who can help you determine which type of UBI, if any at all, may benefit you most.
Give us a call if you would like to learn more about usage based automobile insurance. We serve clients in Troy, Birmingham, Rochester, Rochester Hills, Royal Oak, Sterling Heights, Shelby Township, Macomb, Michigan with all of their home insurance, business insurance, and income tax preparation needs. Get in touch using the form below, or call (248) 362-1313.
