What is the primary purpose of insurance?

The primary purpose of insurance is to offer protection against financial loss. Insurance functions as a safeguard, providing individuals and businesses with a safety net in case of unforeseen events that could cause significant financial hardship, such as accidents, natural disasters, illness, or theft. By paying premiums, policyholders transfer the risk of financial loss to the insurance provider, which in turn spreads that risk across a larger pool of policyholders. This mechanism allows individuals to mitigate the financial burdens associated with unpredictable occurrences, ensuring that they are not left vulnerable to complete financial devastation.

The other options fail to accurately capture the fundamental role of insurance. While reducing expenses or providing loans may be associated with financial planning or management, they are not the core objective of insurance. Similarly, insurance is not designed for wealth accumulation; instead, it focuses on risk management and providing peace of mind by protecting assets and income from adverse events.