What is the primary purpose of insurance?

The primary purpose of insurance is to protect against financial loss. Insurance serves as a risk management tool that allows individuals and businesses to transfer the risk of potential financial losses to an insurance company in exchange for premium payments. By pooling the risks of many policyholders, insurance companies can provide financial protection to those who experience unexpected events, such as accidents, illnesses, natural disasters, or other unforeseen incidents.

When people purchase insurance, they are essentially buying peace of mind, knowing that they have a safety net in place to cover potential costs that could be financially devastating. This protective function is especially crucial in areas such as health care, property, and auto insurance, where the financial burden of an incident can be significant. Therefore, the fundamental role of insurance lies in its ability to mitigate risk and provide security against unexpected financial hardships.