What is the primary purpose of insurance?

The primary purpose of insurance is to provide financial protection against potential losses. Insurance operates on the principle of risk management, where individuals or organizations pay premiums to transfer the risk of certain losses to the insurer. By pooling the premiums of many policyholders, insurance companies can cover the losses incurred by a few, thus offering a safety net for those affected by unexpected events such as accidents, disasters, or health issues. This assurance allows individuals and businesses to manage their financial stability more effectively during unforeseen circumstances, providing peace of mind knowing they have a plan in place to mitigate financial hardships.

While generating profit, investing in financial markets, and regulating financial institutions are aspects related to the insurance industry, they do not capture the core purpose of why individuals purchase insurance in the first place. The fundamental goal remains the protection and security that insurance provides against the uncertainties of life.