A telecommunication device is placed in the factory-installed port of your car. The device transmits information like miles driven, time of day, location where the car is driven, speed, rapid acceleration, hard braking, hard cornering, and air bag deployment to the insurance company.

The insurance company blends data from the telecommunication device with other rating factors to set your premium. Those driving short distances at low speeds during daylight hours will likely pay less than fat, high mileage, night-time motorists. Rates may be higher for drivers prone to flooring the accelerator and/or stomping the brakes.

UBI offers additional benefits as well. Feedback on unsafe driving behaviors may cause policyholders to rethink risky habits. Law enforcement can use GPS tracking to recover a stolen vehicle. Airbag deployment sensors may lead to shortened accident response times.

Privacy is the primary drawback to usage-based auto insurance. The UBI policyholder must give the insurance company permission to gather real-time data on where, when, and how he/she drives the vehicle. However, a growing number of people are willing to sacrifice privacy for lower insurance rates.