What is the primary purpose of insurance?

The primary purpose of insurance is to protect against possible unforeseen financial loss. Insurance serves as a risk management tool that helps individuals and businesses safeguard themselves from the financial repercussions of unexpected events, such as accidents, natural disasters, or other incidents that can lead to significant financial strain. By pooling risks among many policyholders, insurance allows individuals to receive compensation for their losses while spreading the financial risk across a larger group, making it easier for everyone involved to handle potential losses.

This approach not only offers peace of mind, knowing that financial support is available in times of need, but also plays a crucial role in encouraging economic stability. When individuals have insurance coverage, they are less likely to face devastating financial setbacks that could jeopardize their personal finances or business operations. Thus, insurance is fundamentally about protecting against the uncertainties of life, ensuring that individuals and entities can recover from losses without facing severe financial hardship.