Here's something that frustrates a lot of drivers: you're a careful, defensive driver who barely uses your car, but you're paying the same premium as someone who speeds through rush hour traffic twice a day. That doesn't seem fair, right? Usage-based insurance (UBI) is designed to solve exactly that problem. Instead of pricing your policy based on broad demographic categories, UBI tracks how you actually drive—and rewards you for safe habits with real discounts.
The concept is simple: install a small device in your car or download an app on your phone, and your insurance company monitors your driving behavior. Drive safely, avoid hard braking, and keep your mileage low, and you could save anywhere from 10% to 35% on your premium. In 2025, about 14.4% of auto policies now include telematics technology, and the number keeps growing because drivers who try it tend to like it—84% say they'd recommend it to a friend.
How Usage-Based Insurance Actually Works
There are two main flavors of usage-based insurance: programs that track how you drive, and programs that track how much you drive. Most major insurers offer one or both.
Pay-How-You-Drive programs (sometimes called telematics insurance) monitor your driving behaviors. A plug-in device in your car's diagnostic port or a smartphone app tracks things like speed, hard braking, rapid acceleration, sharp turns, phone use while driving, and what time of day you're on the road. Drive smoothly, avoid your phone, and stick to daytime hours, and you'll earn discounts. Progressive's Snapshot, State Farm's Drive Safe & Save, and Liberty Mutual's RightTrack all work this way. Drivers who maintain good habits save an average of $322 per year with programs like Snapshot, with potential savings up to 35%.
Pay-Per-Mile programs are simpler: they charge you based on how much you actually drive. You pay a low monthly base rate (typically $30-$100) plus a small per-mile fee (usually 3-10 cents per mile). If you work from home, take public transit, or just don't drive much, this can lead to significant savings. Nationwide's SmartMiles and Allstate's Milewise are the two biggest players here. Both cap your daily mileage charges—SmartMiles stops counting after 250 miles in a day, so road trips won't blow up your bill. The sweet spot for pay-per-mile insurance is drivers who log under 10,000 miles per year, well below the national average of about 11,400 miles.
What You Can Actually Save
Let's talk real numbers. Most UBI programs offer an immediate enrollment discount just for signing up—typically around 10%. Then, after a monitoring period (usually 90 days to six months), your insurer adjusts your rate based on your actual driving data.
Here's what the major programs advertise: American Family's DriveMyWay offers 10-35% savings, State Farm's Drive Safe & Save provides up to 30%, and Liberty Mutual's RightTrack goes up to 30% after you complete the program. For pay-per-mile options, Nationwide's SmartMiles users save an average of more than 25%, while Mile Auto claims drivers can save 30-40% compared to traditional insurance.
But here's the catch nobody likes to talk about: not everyone saves money. About two in ten drivers actually see their rates go up after the monitoring period because the data revealed risky driving habits—frequent hard braking, speeding, late-night driving, or phone use behind the wheel. If you're honest with yourself about your driving style, you'll have a good sense of whether UBI will work in your favor.
The Privacy Question You're Probably Wondering About
Let's be blunt: nearly 70% of drivers have concerns about privacy and data collection with telematics programs. And honestly, those concerns aren't unreasonable. These programs track when you drive, where you drive, how fast you go, and whether you touch your phone. That's a lot of personal information.
The big privacy questions center around three things: what data is collected, how long it's kept, and who else gets access to it. Most insurers say they use the data solely for pricing your policy, but there have been cases where telematics companies sold driver data to third parties. In January 2025, the Texas Attorney General sued Allstate and its partner Arity, alleging they collected and sold telematics data from over 45 million Americans without proper consent. That lawsuit is still ongoing, but it highlighted real concerns about data sharing.
Here's what makes this even more complicated: some newer cars have telematics technology built right in, and automakers are partnering with insurance companies to share that data automatically. In those cases, your driving data might already exist and be available to insurers even if you never opted into a UBI program. Consumer advocates have raised serious concerns about transparency here—many drivers don't realize their vehicles are sharing this information.
That said, 51% of drivers say the cost savings could potentially outweigh their privacy concerns, and 56% would consider telematics if they were given a clear explanation of how their data would be used. If you're considering a UBI program, read the privacy policy carefully. Ask your insurer specific questions: What data do you collect? How long do you keep it? Do you share it with anyone? Can I opt out after the trial period? You have every right to understand what you're agreeing to.
Is Usage-Based Insurance Right for You?
UBI makes the most sense for certain types of drivers. You're a great candidate if you work from home, drive fewer than 10,000 miles per year, avoid rush hour, don't use your phone while driving, and generally practice defensive driving habits. Retirees, remote workers, and people who rely on public transit during the week are often ideal fits.
On the flip side, UBI might not be the best choice if you commute long distances, frequently drive at night, have a lead foot, or just don't want to be monitored. And if you share your car with a teenager or another driver with less-than-stellar habits, their driving will affect your rate too.
The good news is that most UBI programs offer a trial period. You can try it out, see what kind of score you're getting, and decide whether to continue. Many insurers guarantee that your rate won't increase during the trial period, so there's limited downside to testing the waters. Just make sure to clarify the terms before you sign up.
How to Get Started
If you're interested in trying usage-based insurance, start by checking with your current auto insurer—they may already offer a program, and switching within your existing company is usually the easiest path. If they don't offer UBI or you want to shop around, get quotes from several insurers that do.
When you enroll, you'll either receive a plug-in device in the mail or download a smartphone app. Installation is simple—the plug-in devices connect to your car's OBD-II port (usually under the dashboard near the steering wheel), and apps just need location and motion permissions to track your driving. After the monitoring period ends, you'll receive your personalized rate based on your driving data. As of June 2025, the average full coverage auto policy costs $2,680 per year nationally, so even a 15-20% discount can mean real money back in your pocket—potentially $400-$500 annually for safe drivers.
