What is the primary purpose of insurance?

The primary purpose of insurance is to offer protection against future losses or damages. Insurance functions as a risk management tool, allowing individuals or businesses to transfer the financial risk associated with unforeseen events—such as accidents, illnesses, or natural disasters—to an insurer. By paying a premium, policyholders gain peace of mind knowing that they will receive financial assistance should a covered event occur. This can significantly mitigate the financial burden that could otherwise arise from these unpredictable situations.

The other options, while they may have some relevance in specific contexts, do not represent the fundamental objective of insurance. For instance, while certain insurance products may provide tax benefits, that is not the primary aim of insurance as a whole. Similarly, insurance is not intended to guarantee profit on investments or serve as a savings vehicle that accumulates cash value, although some types of insurance—like whole life insurance—do incorporate elements of savings, but these are secondary to the primary protective purpose.