What is the primary purpose of insurance?

The primary purpose of insurance is to provide protection against financial loss. This is achieved by transferring the risk of potential financial hardships from individuals or businesses to an insurance company. When a policyholder pays premiums, they are essentially purchasing a safety net that ensures they will receive financial support in the event of unforeseen circumstances, such as accidents, natural disasters, or other losses. This concept is fundamental to the insurance industry, as it allows policyholders to manage risk and ensure financial stability during difficult times.

While wealth creation for investors, tax benefits, and loan offerings may occur in specific contexts within the broader financial system, they are not the core purpose of insurance. The essence of insurance rests on the principle of risk management and providing peace of mind through coverage against potential financial setbacks. This fundamental understanding is crucial for anyone working in or studying the field of insurance.