What is the main purpose of insurance?

The main purpose of insurance is to provide financial protection against unexpected losses. This is a fundamental characteristic of insurance, which is designed to help individuals and businesses manage risk. When people purchase insurance policies, they transfer the financial burden of certain risks—like accidents, illnesses, or natural disasters—to the insurance company. In exchange for regular premium payments, the insurer agrees to cover potential financial losses and provide compensation when covered events occur.

This protective aspect of insurance helps to ensure that people can recover from setbacks without suffering catastrophic financial hardships. It fosters stability and security by allowing individuals to plan for the future with the knowledge that they have a safety net in place should unexpected events arise.

While generating profit for the insurer is a reality of the insurance industry, it is secondary to the ultimate goal of providing safety and security to policyholders. Similarly, promoting risk-taking behavior and guaranteeing high returns on investment are not aligned with the core function of insurance, which centers around risk management and protection against financial losses.