What is the primary purpose of insurance?

The primary purpose of insurance is to provide financial protection against potential future losses or damages. This means that individuals or businesses can transfer the risk of financial loss to an insurance company in exchange for a premium. By doing so, they create a safety net that helps cover costs associated with unforeseen events, such as accidents, natural disasters, illnesses, or legal liabilities. This protective mechanism allows policyholders to maintain their financial stability and peace of mind in the face of life’s uncertainties.

While investments, compliance with regulations, and tax benefits can play roles in the broader financial planning context, they do not reflect the core function of insurance, which is risk management and loss mitigation. Understanding the main aim of insurance as a tool for financial security is crucial for properly navigating the industry and making informed decisions regarding coverage options.