What is the main purpose of insurance?

The main purpose of insurance is to protect against financial loss by transferring the risk to an insurance company. This process involves individuals or organizations paying premiums to an insurance company, which then assumes the financial responsibility that arises from certain risks. For example, if someone has health insurance and incurs medical expenses, the insurance company covers a significant portion of those costs, thereby protecting the individual from a potentially overwhelming financial burden. This risk transfer mechanism allows individuals to manage and mitigate risks in their lives, such as accidents, health issues, or property damage, fostering a sense of security and stability.

While other options might suggest financial benefits, they do not accurately represent the core function of insurance. Insurance is not primarily designed to provide additional income or grow wealth over time. Instead, its focus is on providing a safety net and financial support in the event of unexpected events, allowing people to navigate risks without facing catastrophic financial consequences. Moreover, insurance does not eliminate risks entirely; rather, it helps manage them by providing financial protection against certain types of losses.