POSTED BY May 26, 2010 COMMENTS (70)ON
How do you find out if a product suits your requirement ? What about a very simple calculation which can take into account most important requirements like lock in factor , complexity of a product , your requirement and its return and risk potential and tells you if it really suits your requirement. This Post will talk about a concept developed by me called GFactor , which is a score system for any Financial Product. You can input 4 factors and get a score for a product . So this GFactor score system will tell you about goodness/badness of a product. Gfactor stands for Goodness Factor .
GFactor is a very simple rating system for Financial products which gives a score on a scale of 0-1 . 1 represents excellent , 0 means worse . There are mainly 4 factors which we consider when we design this GFactor .
Trap Factor is nothing but its score for the product on scale of 0 – 1 for the lock in period. The more trapped you have to be in product , the more will be the Trap factor score. One important point you should note here is that you should also consider how much loss you have to take even after you can freely come out of the product . For example : Endowment policies trap you for long periods like 15 to 20 yrs . Even though there is an option to close the policies you loose a lot of money. So the trap factor of Endowment Policies will be more like 0.9 or 1 , where as Mutual funds (non tax saving funds do not have any type of locking period) . So they can have trap factor of 0.1 or 0 . In ULIP you are stuck for at least 3-5 yrs , only after the 5th year. So it can have a trap factor of 0.6 or 0.7 you can get out without any penalties . For term insurance there is no trap factor , you can stop the policy any time .
Years of Trap
Risk/Return Factor is a factor which will evaluate a single digit score for its risk/return potential . This score takes into consideration both risk and return . You can look it as risk adjusted return potential . so this factor will determine the return potential considering the risk potential. To calculate this you should know average return and average risk figures of a product in its total duration . Lets see the calculation first .
Risk Return Factor = (Average Return – Average Risk)/Average Return
Lets see an Example in case of ULIP : Robert wants to buy some mutual funds for next 5 yrs . In these 5 yrs , as per the historical data , we know that he can expect an absolute 100% return on average (his money can double) , and if some thing bad has to happen hecan loose around 30% of value (the figures will differ for everybody) . So
Example for Mutual Funds (5 yrs)
Risk Return Factor (Mutual funds) = (100 – 30)/100 = 0.7
Example for Fixed Deposits (2 yrs)
In this case suppose the returns from FD are @8% .
Risk Return Factor (FD) = (16 – 0)/16 = 1.0
Note : For term insurance , the return will be the max amount you can get and Risk would be amount you can loose all , which is total premium over many years.
Complexity score is a number you assign to the product, depending on the how complex of easy it looks to you . For example Mutual funds can be easy to understand for me , so I can put 0.1% for it a complexity, whereas NPS is more complicated to me , so I will put 0.5 . This means If it looks too complicated for you, then give a higher score, whereas if you understand it well, assign lower score .
For a normal person I would say ULIP is complicated , so we gave give a score of .7 or .8 or 1 ,depends on you, where as term insurance is extremely easy to understand, so it will get 0 or .1 , Mutual funds would be .2 or .3
Its a score given on the fact that how badly you need or require the product and will it be the best thing for you. One person may need it more than other, so the score will be different for different people. If you are not in a hurry, but your relative suggests you a policy , then it does not become a very high priority product for you, because you do not require it at that time, so you will assign a lower score to it . For a person who is in his 26-27 age and just married and has some financial dependents , His score for term insurance will be around .9 or 1 because he badly needs it . Make sure you know difference between your needs and wants
A person who is 45 , for him/her NeedFactor for Health Insurance would be .8 or .9
A person who is Extremely High risk taker and understands equity investing well , his need factor for NSC or FD would be low , say a score of .2 or .3 because he really does not need it and it does not suit his requirement also .
TF : Trap Factor
RRF : Risk Return Factor
CF = Complexity Factor
NF = Need Factor
You should understand how the formula should be constructed. Out of the 4 variables, 2 scores shows strength of the product(Need Factor and Risk Return Factor), where as two scores are negative(Trap and Complexity Factor), so below formula should take care of this aspect .
GFactor Formula = (NF * RRF) – (CF*TF)
Lets take an example . Ajay is a 35 yrs old Indian working in a Software company, He has 2 kids and 1 wife 🙂 and 1 parent to support . His risk appetite is moderate and he cant take more than 20% downside in his investments at any given year . He has a home loan and a car loan at this moment and has just 10 lacs of overall savings . Below is the chart which calculates GFactor for some products considering Ajay’s situation. Understand that these numbers are for Ajay, it can change for you .
| Term Insurance
| Health Insurance
| Tax Saving FD
Just like we have Gfactor of a product , we can have GFactor of a Portfolio , which is average of GFactor’s of all the products in a Portfolio . Example
So average of all the GFactors = (.95 + .43 + .35 + .72 + 1 + 1)/6 = .742 . This is a good Score for a Portfolio , But I can do better than this . Whats your Portfolio GFactor ?
There are 4 main factors which matter when taking the decision regarding a Financial product , The above concept is my own thinking and It may not fit everyone criteria , but I am sure it would be true for most of the people , If you have disagreements , its fine . We subconsciously understand how there 4 factors affects our decision making process , but the idea is to put it into formula and get a Score out of it , so that we can compare and know how good or bad a product can be for us .
Note : This is an old post , I am republishing it with changes
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70 replies on this article “GFactor , A decision making tool for Financial products”
I have a LIC policy (Jeevan Anand – SA 10,00,000 – 16 Years – INR 75,752 PA)
i have already paid 7 installments without fail. I came to know that there are term policies which gives good cover like 1 Crore and premium is less like 20,000 PA
is this true?if yes, could you please advise do i need to surrener my Jeevan Anand policy? if so, how much would i get in return?if no, kindly let me know if i can take another term policy and continue with both?
I will be thankful if you educate me in this regard.
You can also continue with both as Jeevan Saral is a investment policy . You can take a term cover for your protection purpose. Let me know if you want HDFC term plan, we can help you on that !
Agree with Akshay, yr Gfactor must be patented
Haha .. i would have loved to , but I dont think its patentable ..
Just read your articles on Real estate investment in India & GFactor, must say superb…..
Your articles are always above comments and always attract compliments.I am thinking to contribute to your this effort of financial literacy mission which you are spreading across the investor community but I need some guidance and inputs from you so that I can make a start.
How do you want to contribute ?
Nice article dude…quite innovative.
True to your recort on Revert.
I had drafted a mail yesterday to the above revert- but due to your server problem it couldnt get uploaded and I hadnt saved any.
Nevertheless, Will try to communicated what I mean.
The discussion is never with regards to the tool GFactor, but the usage and applicability of it. This is because, the Gfactor is always depict what the prospect has decided earlier. His scoring is always baised to that extent. Thus I am suggesting, if the score is 1 – which means an absolute BUY. The prospect should challenge this decsion by asking reverse questions like do I really need it, is it totally risk free.. etc. This will help him evaluate the product/portfolio 360 degrees.
You must read How customer thinks by Gerald Zaltman.
Ok , I got your point , but then comes hte confusion again
So what you are saying is that a person has to always ask that question , because in both the scenario’s he is thinking along with some data in mind .
Option 1 : A person has some liquidity , simplicity and return requirement , and he tries to find out if a product should be bought or not
Option 2 : In this case , he already has option 1 , just that he is doing an additional step of quantifying it with gFactor , Now this additional step is just maths , nothing else . All the underlying factors remains the same .
So in both cases the person has to think about things like “Do I really need it” or “Is it totally risk free” ? Right ?
I hope I was able to communicate why I am confused yet ?
You have got it largely. I will give an example.
I have already decided in getting into FD – or more importantly subconcisouly I favor FD. Hence my reactions will be attuned to favor it. Just like if I like someone, I will be in favor of him (conciously and subconcisouly). Thus the Gfactor will only throughput the same verdit – that is BUY FD. This can be very lethal – as your tool also validates his choice. Human always seek confirmation – Your tool makes them confident to take that call. But my point is at the base – that the decision you are making are could be emotional, could be irrational, preconceived, hardwired etc and needs to be reviewed in reverse.
Pls note subconciouly mind is very important parameter to be considered. They direct most of our decisions. Thus I emphasis on it so fervently. Since the call is coming from subconcious – becasue its subconcious we dont come to be in aware of it. GFactor will deduce what happening in your subconcious mind and help one to counter.
yes , I get your point and its very valid .
I will give you an example, there are many people who tell us “I am risk taker , Dont want money for next 10 yrs from my Investments , Shall I take LIC policies ?” . Now this statement itself has all the inputs which can lead to an answer – “No , you should not buy LIC policy” . however many people dont get it . For them , If they trust , Gfactor can be a flowchart kind of tool which can give them an answer based on their inputs , Thats all was my point 🙂 .
One last point. get your Gfactor patented 🙂
haha 🙂 . Is that really that good to be patented ? Or i took your comment too seriously 😉
No Manish, probably you are undermining what you have created or not in insight of other things that could be created out of it. This is a compliment.
If you are in the age cohort of 27-30. I suggest you need to do a lot of diverse reading. Since you have an audiance, you have an responsibility.
All the best.
Thanks 🙂 . point well taken , I am 27 yrs as of now and learning each day , I have long way to go 🙂
Can I invite you to my blog and share your feedback http://www.ayelburgi.wordpress.com
Very recently I have written an article on Checklist to evaluate an Relationship Manager/Investment Manager. There are others as well. Your feedback will help.
Sure, Will look at it and share my feedback soon
Sure, Will look at it and share my feedback soon
GFactor is a good indicator and I have read the cavet. But I was thinking why not invert it. For eg if its says 1 then I would consider the person might be taking an irrational decision while if its exterme at 0 – there are chances that he could be little more rational.
My point is the factor asked to be answered are all subjective. Research has proved that our congnition works in framing any answer or align it our already predecided result. This is not known to our concious mind as we have already taken decision through our subconcious mind. So its a case of, when you dont know about what you dont know – how can one reflect upon it.
Gfactor can be an alaram in this respect – when I encounter a ‘0’ – its speaking my rational mind. If I invert it – it gives me an option to review. Is it that complicated, shouldnt I lock in or is the return undermined or Do I really dont need it. Here you are challenging your deep routed animal brain wired cogniton. Then the prospect is complete in his decision making process as he has reflected 360 degrees.
I understand you have been a student of Behavioral Finance. Hence drafting this mail. You are doing a great service. Wishing you all the luck and god bless.
I am too a student of Behavioral finance. I invite you onto my blog (www.ayelburgi.wordpress.com) for your comments. I have lamblasted the abuse of Structured Products, The age old mindless categorisation of prospects like aggressive, moderate or conservative. It helps only analysts- they can afford to go more wrong with Aggressive clients than the moderate one’s – because, hey Sir – you are aggressive investor remember.
I have seen your track in replying quite promptly. Would be happy to receive your veiws.
Your comment was heavy for me 🙂 . Didnt get the essence of what you are trying to say actually . Gfactor is more of a mechanism which can give a score which tells someone if that product is suitable to him situation or not . Note that the score has nothing magical in it, its just a mathematical way of deciding something which we would have done mentaly based on some factors . Also as I have designed it personally , it prone to errors and subject to belief. 🙂
Will check out your blog 🙂
I have started visiting ur blog from the past 3 days and must say have spent most of my internet time on it.Loved the simplicity with which you explain all the content.Never thought that financial planning could be so much fun reading.I am just finished my studies and will join my job next month.Hope to apply all your knowledge there.
BIG FAN OF U AND UR BLOG
Great 🙂 . Good to hear that . Keep reading and spread your knowledge 🙂
The article on the GFactor is very interesting and I have applied the formula in my portfolio too. However I have a few doubts needing clarifications:
For Mutual Funds you assumed an RRF (Returns – 100%, Risk – 30%) of 0.7. While this may be true for Equity funds but for debt or balanced funds, it will be lower. How do we calculate the RRF if our MF portfolio has both Equity and Debt funds?
Also it will be interesting to apply this formula to self occupied home and the second house you may have purchased for investment purposes. My data will be:
Self occupied house – TF-0.9, RRF – 0.8, CF – 0.3, NF – 1.0
Second home – TF – 0.9, RRF – 0.8, CF – 0.4, NF – 0.6
Any thoughts/views on this?
For a portfolio with a mix of Equity and debt it will depend on what ratio you have equity and debt , suppose you have 50:50 of equity and debt and your time horizon is 5 yrs for example
Return for equity : 100%
Risk in Equity : -30%
Return in Debt : 50%
Risk in Debt : 0% (cant loose money in pure debt)
So over all if you have Rs 100 in your portfolio out of which 50 is in equity and 50 in debt, you upside (return) is 75 (100% of equity (50) + 50% of debt(50)) and risk is 0 as (max loss in equity will be 15 (30% of 50) , but debt part will grow by around 15 anyways even in worst case ) .
So RR factor would be Return : 75 and Risk : 0 (this is just average and indicative)
Regarding real estate , it will not make sense to calculate GFactor of self occupied home which is debt free , because GFactor is only to find if a product is suitable to buy or not, for self occupied house you already are living in it .
Also the numbers you gave me are your numbers as per your situation , how do I comment on that ? TF should be much lower than 0.9 as you have liberty to sell it off and get out , why have you take so high ,is there any obligation to stay in without loosing on premature cost ? It should be around 0.6 , and RRF can looks good considering current times , may be 0.7 would be a good figure , CF and NF are purely your numbers considering how complex you personally feel it as and your need for it .
Execellent thought for average investor. The “G-Factor” formulae only looks at narrow scope of investor requirements, there could tax complusion of an investor besides it is hard to quantify ranking of individual factors. A G-Factor score of over 0.7 may not guarantee returns that were expected or assumed while formulating strategy thus beating the entire process. More over Risk-Return factor gives me a feel of simplified Sharpe ratio explained to an investor, however Sharpe ratio would still do better job. The Tool also ignores long term perspective and invesment goals of investor.
While what you said is correct, GFactor is just about measuring the suitability of a product , ofcourse its not the best way of finding it out, but it has some way of formulating things mathematically .
This was a mistake from Business Bhaskar newspaper as there management trainee who translated the article was given the matter of my previous article to refer and the trainee translated this article coping the same sheet leaving some details left of the previous article. Editor of Business Bhaskar had a word with Shri Manish Chauhan and has communicated there mistake. They would come up with a clarification in the very next addition. I want to assure all our members that if I will sent any article which had even a small input from others views/thoughts then that article would clearly have the source information as I think that others people views/thoughts/articles can not be described in my name as my views. These views are solely from the origin point (in this case of Shri Manish) and should be shared strictly with the reference of there origin point. I have also asked Business Bhaskar to keep a throw check so that such blunder mistakes are not repeated in future and have been assured by them that necessary attention shall be paid hereafter. I once again repeat that I never had any intentions to publish manish ji articles with credits to me.
I did not understand the Trap Factor properly.
Trap Factor will he higher if the lockin period is more – Is this correct ?
If so Endowment Plans should have Trap Factor of something close to 1 or 1
But the text above the table says
“Endowment policies trap you for long periods like 15 to 20 yrs . Even though there is an option to close the policies you loose a lot of money. So the trap factor of Endowment Policies will be very less like 0.1 , where as Mutual funds (non tax saving funds do not have any type of locking period) . So they can have trap factor of 0.9 or 1.0 .”
Shouldnt this be other way ?
Yes, it should be other way only , I made the change 🙂
WHat was your Gfactor ?
Good for beginners, actually can work for everyone if we know what we are putting there. But most of us don’t have good knowledge of the product. Too much of descretion is demanded on user’s part. Like, PPF provides loan facility which means easy liquidty how are we going to decide trap factor? People buy Emdowment/money back policies because they think they get sum assured in the end and some money at regular intervals for them these polocies are satisfactory product which may affect decision. May be I am confused, you can explain better.
Good example..2 kids 1 wife btw how many wives a normal person can afford otherwise?
How many can one afford, depends on the capacity and dedication 🙂
Regarding the formula and its use for average person , its not recommended for a totally new person to use GFactor , its actually for some one who has basic idea but can not take decision because of availibility of much information before them . Also if we take PPF into account , trap factor should be high because the actuall trap the product offers is very high , Liquidity is very partial because
a) you can not get out the product if you need all the money
b) Even loan is avaialable only after some point .
Overall the GFactor only tries to try to give a decision based on all the factors , its not perfect like everything else in life .
good effort from ur side towards mathematising human feelings like “complexity” and “need”. indeed if used properly this factor estimation shall help in assessing each product
one thing i wanted to mention regarding term insurance. u said it has a 100% return ability, but this means that the person is dead, right? then whats the use calculating return over it when the return is unutilisable since the investor is dead!! similarly if it has 100% risk (since all the premia may be completely lost ), it means that the investor is alive, whish of course is better than getting return after death. i think since term insurance return is related to the death of the investor it is better that the G factor of this product is better left uncalculated.
i dont mean to offend u. pardon me if i have.
What you say makes sense in a way , I agree that we should not calculated GFactor of Term insurance at all , However if we want to calculate we are trying to see what is can be .
The return and risk are long term average monitory values we can loose and gain , So in term insurance , It has “capacity” to give us 100 units in long term , however we can loose 4-5 units in that , take it as units and not percentage and it will be easy to understand .
This is really interesting, however, for newbie, it will better to make it more simpler (like the finance calculators in moneycontrol’s wealth sections). Here’s what u can do: Ask for exact trap period, person’s age and instrument type, I guess that will give you all the data to calculate your G-factor and then with the final g fctor, give an explaination like “The G-factor for your investment was 80%, which means, it is very attractive option for you”.
(i converted 0.8 to 80%, it can be shown as a green progress bar as well). Keep up this good work.
Thats a good idea, let me work on it some time in future 🙂
Indeed very good work Manish. All I wish that JagoInvestor must reach to as many as people as possible to wide-spread the benefits of having financial knowledge.
I’m somewhat agree with Dr. S Ramakrishna that calculations of such sorts a bit cumbersome for ‘aam’ aadmi like me.. might be due to fact that I’m weak in numeric calculations 😛 .. still I will calculate G-Factor for my investments. btw, on other side… when I received this blog update in mail.. the ‘GF’ in GFactor put my interest on higher side to promptly check it out.. but alas! its all about calculations!! 😀
Haha .. I can understand that it can get little complicated , but one has to understand that this is one time formulation of formula and most easiest way of putting things mathematically , I put the calculator for that reason only
PS : Regarding that “GF” thing , I think we can create one formula to evaluate the Good ness factor for that too 🙂
hi ! i feel it is a nice work indeed. but it is complex and not rememberable for long time. Not of much practical utility.
Dr. S Ramakrishna
Thanks . I have tried to make it as simpler as I can . thats the reason it not that accurate as it can be. what can be alternatives ? any suggestions ?
Just one word to say…EXCELLENT…thanx bro…u made us analytical
thanks 🙂 . How can we improve upon this thing ? Any suggestions
I am not sure if this will work for a PPF. GF for a PPF comes out to be
= (NF * RRF) – (CF*TF)
Which does not reflect the fact that PPF is a must have debt investment.
(if DTC comes with 3 lakh exemption thn all the more reason to have a PPF)
Also GF factor does not take into account personality of the investor. In principle ULIPs can be used to get good gains if managed properly so GF need not low for everyone.
There comes the CF value , it will vary from person to person . Why have you put CF for PPF at .5 , Is it complex product for you to understand ? If its complex to understand for you then then one should think again to invest in it . However I think CF for PPF would be above .8 for any person .
Same thing for ULIP’s , as you said for smart people who can use it well , the CF will be low as they understand the product and can utilize it well .
The GFactor takes into account the scores which are for an individual . No score should be take as a fixed figure for a product . Am I clear ?
“CF for PPF would be above .8 for any person ”
This will make GF even lower!
I put CF at .5 because of loan taking etc. is a a little cumbersome. However if CF is lower than GF will increase yes.
Err .. My bad . I actually meant , it should be less 🙂 than 0.2 . It will increase the Gfactor .
I must say it’s a very good analysis of how we can evaluate investment options against multiple factors. Many a times, as a investor we may have done something similar in back of our mind, but rarely we do it explicitly using any mathematical formula. In that context, this is a good work.
But I have couple of queries and suggestion regarding this:
1. RR Factor of Term Insurance you have shown as .95, i.e means you are assuming 100% return and 5% risk. Not understood it completely. Appreciate if you can provide some more context in this.
2. For FD, you have shown the Complexity Factor as 1, but in my opinion, FD is a very simple product to understand and the complexity factor should have been less.
3. Can you provide some benchmark RR and Complexity Factor for Real Estate as well as Gold?
4. I am doing regular contribution in Superannuation, PPF and PF and for these instruments, I have calculated RR Fcator as 1 (as in most these cases risk is vertually zero) and complexity factor as .2. Is this a correct assumption?
Overall it’s a good article and I appreciate this.
1) You should not always literally calculate RR Factor , you can directly take the value also , as its a very valuable product and return and risk is not very simple to define , we can take RR factor to be near 1 , what it means is that its a very good product which will most of the time help you and very rarely be a bad product .
However to fit the calculatiosn , I have taken 100 units as what you can get out of it and 5 units as what you can loose in premiums (as premiums wouldbe 3-4% of what you can get as claim) . Anyways if it becomes too tough to understand you can safely leave it .
2) Thats a mistake from my end , It should be very less like 0 or 0.1 , I have changed it , thanks 🙂
3) Real estate transaction are complex to understand and takes much time , so complexity factor should be high only , but it will depend from person to person , some one can feel its complex and other may not. As I feel its complex for myself , but not very much , i would like to assign 0.5 to it . For Gold , it can be 0.2 as its not that complex .
4) Yes looks good .
Brilliant concept Manish… I do not think any body has thought that way. This is really going to help the investors in making decisions and narrowing out on the products as per their appetite and risk capability.
Thanks , We all talk about product suitability taking into mind all these factors so I thought of formulating it mathematically , its nothing but the calculative way of looking at it 🙂
PS : I am still waiting for the guest post no NRI from you I guess ?
I am sure you would not be offended by any critique. I have tried using it several times and it is a little crude in its present form. It leaves too much on user discretion for deciding the values.
IMHO there could be a more effective way for this (Though it may require significantly more effort from your end.) You may ask the individual a set of questions – i.e. Age, Risk Orientation, Present size of Corpus or legacy etc.
You may then ask of investment horizon and then provide scores of various investment instruments. The results would be far more standardized.
Your effort calls for appreciation as its a great beginning – though there is enough headroom for improvement. In its present form it would always favor instruments like term insurance – which can only be a part of the portfolio – MF would usually get an average rating which you would agree is a must have unless you are close to retirement.
I know I am not solving the problem for you. All I am saying that we need to look at the big picture which “You have the Power / Capability / Platform” to address.
Definately , I am not offended by any critique , the simple reason is that I know its not attack , its always to improve , the fact that some one wants to correct me is a sign that they are interested in me :). I would be very much worried if readers do not correct me :0
What you say makes sense and requires more effort in designing . However this a starting point , GFactor was something i wanted to make to just quantify the suitability of a single product for a customer based on simple things , what you are suggesting also makes sense but is at a different level and requires more work,. Will definately think about it in coming times . Do you have more idea’s on it ,can u frame it in a much better package and mail me , we can brainstorm on it .
What do others think about it ?
I have calculated GFactor of my current portfolio. This is as follows:
Products TF RPF CF NF GF
Term plan 0 0.95 0 1 0.95
Health Insrnc. 0 0.8 0.9 0.6 0.48
ELSS .25 0.7 0.9 1 0.475
Gold ornaments 0 1 0 0.8 0.6
Savings a/c 0 1 0 0.6 0.6
So, average GF is 0.621.
Is it good one? Please advise.
Yea . I would say its a good factor and overall your portfolio looks good . However let me say that GFactor is not a standard tool recognised by any org . Its a inhouse concept . So there can be many arguments in it . so dont take it 100% by heart 🙂 . Its just a basic way of looking at things .
Another point i could not understand that you have said that more lock in period-lesser Trap Factor score. But in table, it has been shown that if trap period is 15+, the score is 1. If it is 10-15, then TF score is 0.75.
Further, like term insurance, health insurance will also have RRF score ‘O’. The return is 100%, also the risk of not getting anything is also 100%.
I am confused. Please help.
Its my mistake , it was actually , the higher the trap period, the more trap factor will be . I have corrected it , thanks
Looks like you have not understood RRF well . Return is the average return you can get in overall period and risk is the overall loss you will have to take. So in health insurance , you can expect to get full claim atleast once . so lets say you say its a unit of 100 . so what can you potentially loose in money terms from your pocket ? all the premiums is the answer to take it as 3-4 units . in which case the RRF = .97
I could not able to understand why the term plan R/R factor is 0.95. It means the Return is 100%, Risk is 5% (100-5)/100 = .95. But the risk in case of term plan is also 100%. If we stopped the premium then we will get nothing. Even, after completion of the premiums, we do not get any return. So, R/R factor will be ‘0’. Is it so?
Actually I am assuming that you dont your premiums , so i have taken 5% , also incase the claim is rejected , you will loose out , this is very less probable so overall i have taken 5% as risk , its not a heavenly figure, you can put it 1% or 10% . not much difference will be there .
I can bet 90% of your readers have never thought this way.
90% , are you being optimistic 🙂