The COVID-19 pandemic changed how Americans work — and where work is done. According to a 2023 Pew Research Center study, around 35% of U.S. workers now work remotely all the time, and 41% have a hybrid work schedule.
If you’re among those who no longer commute to an office, opting for a new car insurance policy could save you a considerable sum. And if you don’t drive often outside of commuting for work, you may want to consider usage-based auto insurance. With usage-based coverage, your insurer considers your mileage and driving habits to help determine your premiums.
Here’s how usage-based insurance works, the pros and cons of this type of coverage, and where to find a usage-based insurance program.
How does usage-based insurance work?
When you get started with a usage-based insurance program, your insurer will track your driving behaviors and mileage using telematics. They may install a GPS tracking device in your vehicle or use a mobile app on your phone. The telematics device will transmit information about your:
- Braking habits.
- Acceleration rate.
- Speed.
- Miles driven.
- Time of day you drive.
- Phone usage.
The insurance company then tracks all that data in real time to help calculate your monthly auto insurance premiums. In general, if you drive safely and your mileage is low, your premiums will be low, too. But if the insurance company views some of your driving behaviors as high risk, your premiums will likely be higher.
Usage-based insurance premium discounts vary by insurer. For instance, American Family offers a 10% enrollment discount and an ongoing discount of up to 20%, while Nationwide offers a 10% enrollment discount and an ongoing discount of up to 40%. Not all insurance companies offer an enrollment discount. Comparing different program options can help you find one with discounts that align with your needs.
Usage-based insurance pros and cons
Pros:
- Personalized coverage tailored to your driving behaviors and mileage.
- Low premiums for low mileage and safe driving.
- Incentive to drive more cautiously.
Cons:
- High premiums for high mileage and risky driving.
- Possible privacy concerns about having driving data tracked.
When should you get usage-based insurance?
It may be worth considering a usage-based insurance program if you work from home all or part of the time, and you drive infrequently for personal purposes. Low-mileage drivers can often get cheaper car insurance by opting for coverage like this. That said, you’ll also want to ensure you’re driving safely, as your habits impact your premiums. Follow the posted speed limits, accelerate at a reasonable pace and give yourself plenty of time to brake.
Usage-based insurance probably isn’t the right choice if you drive often, or your driving habits could be considered high risk. For instance, if you speed or use your phone often while you’re behind the wheel, standard auto coverage is likely the better choice.
Where to get usage-based insurance
Several major insurers offer usage-based insurance programs. You can participate in a program with the following companies:
- Allstate.
- Farmers.
- Liberty Mutual.
- Progressive.
- State Farm.
- USAA.
Once you’ve compared options, you can contact the insurance company directly to enroll in a program. They’ll guide you through the steps to enroll and provide information about the type of device they use to track your mileage and driving behaviors.
Usage-based insurance vs. pay-per-mile insurance
While usage-based and pay-per-mile insurance may work similarly, there are some important differences between the two. Insurers typically consider your mileage and driving behaviors when you enroll in a usage-based insurance program.
Pay-per-mile coverage tends to be simpler, with insurers tracking your mileage exclusively. With a pay-per-mile policy, you’ll typically pay a per-mile rate for coverage in addition to a base rate set by your insurer. This type of coverage may be classified as usage-based, but many true usage-based insurance programs also track driving behaviors in addition to miles driven.
