The term "rate of return" generally refers to the return on an investment you make, such as a certificate of deposit or a treasury bond. In some cases, you may also hear this term discussed in relation to life insurance. Though any form of insurance can be considered an investment in your future, it is somewhat difficult to calculate the rate of return for a car insurance policy. While life insurance and investments will eventually pay the purchaser a sum of money, car insurance policies only pay out in the event of an accident. For this reason, it isn’t possible to determine the exact rate of return.
In most cases, investors calculate the rate of return in order to decide if an investment is worth their money. Instead of calculating the rate of return on possible car insurance policies, drivers should consider the price of the policy, its level of coverage, and their personal preferences. For example, if a driver is insuring an inexpensive or old vehicle, it may not be wise to purchase comprehensive coverage. If something happens to such a vehicle, it may be cheaper to simply buy a new one. Conversely, owners of brand new or very expensive vehicles often benefit from higher levels of coverage because they could not easily afford to replace the insured car.
