3 Little-Known Perks of Usage-Based Car Insurance

This could be the ticket to massive savings for safe drivers.

Usage-based car insurance isn't new, but a lot of people still aren't familiar with it. It's been increasing in popularity over the last several years, and it has the potential to significantly reduce rates for certain drivers. But many drivers choose not to participate in usage-based car insurance, and as a result, they miss out on the following three benefits.

What is usage-based car insurance?

Usage-based car insurance is car insurance that's based on a driver's behavior, rather than just the general information and statistics traditional premiums use. Companies obtain this information by monitoring the driver's behavior for a time, either through a mobile app or a device installed in the vehicle. They track things like:

• When the vehicle is driven
• How quickly the driver brakes and accelerates
• How fast the driver goes
• Whether the driver appears to be distracted

Then, it uses this information to set a personalized rate for the driver. Most car insurance companies that offer this promise not to raise a driver's rates if the monitoring reveals risky behavior, though this isn't true of all insurers.

Three benefits of usage-based car insurance

Here are some of the little-known benefits of enrolling in usage-based car insurance:

1. Drivers can get a discount just for trying it

Usage-based car insurance is optional, and some people are wary of it because they don't like the idea of being tracked. So to incentivize drivers to participate, many companies offer discounts to those who enroll.

This is an upfront discount that drivers get right away, even before the monitoring period is over. The exact discount varies by company, but nearly all of them give participating drivers some type of savings, at least for the policy period after they first enroll.

2. Safe drivers can qualify for additional savings

Drivers who demonstrate safe driving behaviors could qualify for additional discounts based on their driving habits. Again, this varies by company, but in some cases, drivers can save up to 40% on their monthly premiums.

Though less common, there are some programs that focus exclusively on the number of miles driven rather than the driver's behavior behind the wheel. Programs like these could benefit people who work from home or who rarely drive.

3. Drivers can learn things that will make them safer drivers in the future

Some programs have apps that can give drivers personalized feedback about their driving behavior. For example, if they notice the driver tends to accelerate and brake quickly, they can make the driver aware of this behavior. The driver can then take this feedback into consideration and adapt their driving behavior in the future, which could reduce their risk of getting into an accident.

How to get started

Drivers interested in usage-based car insurance can inquire with their current insurance provider or explore what some other companies in the industry offer. Insurance companies all call their usage-based car insurance different things, so look for a program that discusses monitoring driving habits.

Review the terms of the program before agreeing to participate. Understand what the company will monitor and for how long. Look at how it will use the information also and whether it could potentially raise rates if the monitoring reveals unsafe habits. Take all of this into consideration when deciding whether to enroll in usage-based insurance.

It may not be the right choice for everyone, but it could be an incredible money-saving opportunity for those who are willing to put their driving skills to the test. These programs are probably only going to become more popular over time, so if a specific insurer doesn't offer it right now, check back with them in the future to see if this changes.