What is the primary purpose of insurance?

The primary purpose of insurance is to protect individuals and businesses from financial losses. This protection comes from the risk management strategies that insurance provides, allowing policyholders to transfer the financial risk of specific losses to an insurance company. When an insured event occurs, such as an accident, illness, or natural disaster, insurance policies provide financial compensation that helps mitigate the economic impact on the insured.

Insurance serves as a safety net, helping people and businesses recover from unforeseen events that could lead to significant financial hardships. This function is essential in promoting stability and peace of mind, encouraging individuals and businesses to engage in activities they might otherwise avoid due to the fear of potential losses.

While other options might touch on aspects related to insurance—such as investment planning or charitable donations—they do not represent the fundamental purpose of insurance, which is centered around mitigating financial risk and providing a sense of security. Accumulating wealth and investment planning can be facilitated by insurance products but aren't the core goals of insurance itself.