What is one primary purpose of insurance?

The primary purpose of insurance is to cover losses. Insurance is fundamentally designed to provide financial protection against unforeseen events that can lead to significant losses. When individuals or businesses purchase insurance policies, they transfer the financial risk of certain events (such as accidents, natural disasters, or health issues) to the insurer in exchange for premium payments.

In the event of a covered loss, the insurance policy will pay out benefits up to the policy limits, helping to mitigate the financial impact on the insured. This function of risk management is crucial since it offers peace of mind and security, allowing individuals and businesses to recover and continue operations after unfortunate incidents.

Other choices present purposes that, while they may be secondary benefits of certain financial strategies or behaviors associated with insurance, do not capture the core mission of insurance itself. For example, investing money for growth, avoiding taxes, and accumulating wealth, while related to financial planning and risk management, do not define the primary goal of insurance, which remains to provide coverage for unforeseen losses.