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.  

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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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