​What is Usage-Based Insurance? How it works and its types

Usage-based insurance: Usage-based insurance calculates insurance premiums depending on the driving of an individual rather than conventional car insurance which is a fixed amount. The two important factors that decide car insurance premiums include distance travelled and driving behaviour.  

The insurer uses data such as driving speed, acceleration rate, whether an individual uses the phone while driving and other data to calculate insurance premiums. Usage-Based Insurance rewards good driving behaviour and helps one save on premiums if one doesn’t drive his/her car often.

In simple words, usage-based insurance works on the fundamental of the better you drive, the better your automobile insurance rates.

Usage-Based Insurance- How it works?

Usage Based Insurance uses a telematics device to track how the car is driven. Vehicle “telematics” data is collected under usage-based insurance programs that come from cellular, GPS or other technology.

These programs track driving behaviors such as:

• Acceleration
• Time of day
• Speed
• Hard braking
• Phone use while driving
• Hard cornering
• Miles driven

The insurance company utilizes this information to analyze driving behaviour. It determines the risk profile of the driver which in turn helps in calculating the premium. Hence, a safe driver needs to pay a lower premium compared to a rash driver.

The technology used to track your car’s telematics data depends on the chosen car insurance company. A few insurance companies offer a choice of how one wants the data to be collected, depending on where you live.

Types of Usage-Based Insurance

There are numerous types of usage-based insurance, where the premium is calculated depending on different parameters:

-Pay As You Drive

The premium here is calculated based on the distance driven. There are separate slabs of distance that one can choose as per their respective usage.

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-Pay How You Drive

The premium is calculated here, based on driving patterns such as speed, acceleration, braking pattern. Usage Based Insurance programs track driving behavior and collect data for a specific period of time.

-Pay As You Go

This is a combination of Pay How You Drive and Pay As You Drive. It is mostly like a subscription where one is charged as per the distance or time for a fixed period. It is ideal in case one is borrowing or renting a car.

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