Usage Based Insurance (UBI) is a type of insurance where the premium paid depends on the way the car is driven, and the car that’s being driven. Also known as Pay As You Drive (PAYD) or Pay How You Drive (PHYD), UBI is very different from your traditional car insurance. Well, it may seem like another gimmick by the insurance companies to get car owners to dole out more money, but is actually a very good deal for car owners who drive rather conservatively. This type of insurance is an endeavour to distinguish and reward safe drivers by offering coverage for a lower premium on their car insurance.
This concept makes use of an in-vehicle telecommunication device (telematics), which is generally self-installed into a special vehicle port. The device keeps track of certain measures like the kilometres driven, where the car is being driven and other attributes like hard breaking, air bag deployment if at all, time of day when the car is driven, rapid acceleration, and hard cornering by the driver. This data is later assimilated and analysed, and insurance companies charge premiums based on the information received.
If you drive carefully, haven’t got any tickets in the past, and hardly ever use your car or use it only for short distances, then there’s a good chance that you’ll end up paying a lower premium if you move to a usage-based insurance program.
Broadly, UBI has three different types of coverage. The first coverage type is based on the odometer of your car, which shows the number of kilometres you’ve driven. The second type of coverage calculates the amount of time your car is being used, and the third type is based on the speed, time of day, distance and the length of time driven.
Before you invest in this insurance, let’s take a look at some of the things to consider when looking for Usage-based insurance and FAQs.
1) I don’t use my car much, will moving to usage-based insurance help me save some money?
If you drive your car very rarely, may be only four to five times a month, then you’ll definitely benefit from UBI as you’ll only pay for how much you drive.
2) I’m not the only person who drives my car, my wife and my teenage daughter use it too, should I switch to UBI?
As UBI essentially takes into account the behaviour of the driver and the way the car’s driven, with multiple people using the car, the premium may vary and you may end up paying a higher premium.
3) I’m not a rash driver, I live in the country and we have plenty of open roads so I tend to drive fast, will UBI be a good fit for me?
No, driving within speed limit is one way to save money on UBI premiums. Take a minute to think about how you drive. If you’ve probably got a ticket and have been pulled over by the traffic police for speeding, then UBI might not be the best option for you. But, switching to UBI could make you a more conscious and safer driver, knowing your insurance will cost you more if you drive too fast or break any traffic rules.
4) Do I have the option of disconnecting my UBI tracking device temporarily?
No, most insurance companies track data at all times, and will notify you if the device has been un-plugged. Please note, disconnecting a device is frowned upon, and you may end up paying a higher premium due to this.
These are a few things that must be considered when looking for Usage-based insurance. Since each individual’s style of driving differs, getting in touch with an insurance company to know which type of usage-based coverage applies to you is advisable.
Most companies offer different UBI programs. For instance, Onboard Advisor, a PHYD product by Liberty Mutual Agency Corporation offers up to 40% off to commercial and private fleets based on how safely the vehicles are driven.
Many UBI programs have been implemented around the world as well. GMAC Insurance introduced the PAYD program all the way back in 2004 in the United States, where the car owners who drive less than 15,000 miles annually, stand a chance to save approximately 34% on their premiums. Some other plans offer savings of up to 54%!
These programs have also been appreciated and have won accolades in their respective countries. In fact, one such company, The International Research and Intelligent Systems Global (IRIS) situated in Coventry, UK has won the ‘European Risk Management Product of the Year 2008’ for its PAYD program.
Usage-based insurance is certainly the future of auto insurance and investing in one today seems like a great way to save money.
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