What is the primary purpose of insurance?

What is the primary purpose of insurance?

• A. To accumulate wealth over time
• B. To provide security and protection against financial loss
• C. To manage investments in various financial markets
• D. To avoid legal obligations in financial transactions

Answer: (B)

The primary purpose of insurance is to provide security and protection against financial loss. Insurance acts as a safety net for individuals and businesses, helping to mitigate the financial risks associated with unexpected events such as accidents, natural disasters, illness, and other insurable risks. By transferring the risk of significant financial burdens to an insurance company, policyholders can have peace of mind knowing that they are protected against events that could otherwise lead to substantial financial hardship. Insurance allows individuals and businesses to manage risk more effectively, ensuring that they do not face catastrophic losses that could jeopardize their financial stability. This protective function of insurance is essential for maintaining economic stability at both the individual and societal levels. The other options primarily focus on wealth accumulation, investment management, or avoiding legal responsibilities, which are not the fundamental objectives of insurance. While certain insurance products may have investment components, such as whole life policies, the core mission remains centered on risk management and providing financial security.

The primary purpose of insurance is to provide security and protection against financial loss. Insurance acts as a safety net for individuals and businesses, helping to mitigate the financial risks associated with unexpected events such as accidents, natural disasters, illness, and other insurable risks. By transferring the risk of significant financial burdens to an insurance company, policyholders can have peace of mind knowing that they are protected against events that could otherwise lead to substantial financial hardship.

Insurance allows individuals and businesses to manage risk more effectively, ensuring that they do not face catastrophic losses that could jeopardize their financial stability. This protective function of insurance is essential for maintaining economic stability at both the individual and societal levels.

The other options primarily focus on wealth accumulation, investment management, or avoiding legal responsibilities, which are not the fundamental objectives of insurance. While certain insurance products may have investment components, such as whole life policies, the core mission remains centered on risk management and providing financial security.