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 helps individuals and businesses mitigate potential financial hardships that might arise from unforeseen events like accidents, natural disasters, illness, or theft. By paying a premium, policyholders transfer the risk of a significant financial burden to the insurance company, which in return provides support in times of need. This system allows for more stability and peace of mind, knowing that if a covered event occurs, financial assistance is available.

Generating profit for the insurer is a byproduct of the insurance operation but not the primary aim. While investment in various sectors does occur, the goal of insurance is fundamentally about protection. Additionally, while insurance can help reduce risks through various strategies, it does not eliminate all risks entirely; certain risks are inherent and cannot be fully avoided. Hence, protection against financial loss accurately captures the essence of what insurance is fundamentally designed to accomplish.