What is the primary purpose of insurance?

The primary purpose of insurance is to provide financial protection against specific risks or losses. Insurance functions as a risk management tool that allows individuals and businesses to transfer the uncertainty associated with potential losses to an insurance company. By paying premiums, policyholders gain access to the insurer’s resources in the event of covered incidents, such as accidents, illness, property damage, or other unforeseen events. This protection helps mitigate the financial impact of such risks, ensuring that individuals and businesses can recover and continue functioning in the aftermath of these losses.

Options that suggest functions like investing and growing capital, managing client portfolios, or assisting in legal disputes, while they may represent ancillary services offered by some financial institutions, do not encapsulate the fundamental purpose of insurance itself, which is primarily centered around risk transfer and financial security.