What is the primary purpose of insurance?

The primary purpose of insurance is to serve as a contract that transfers risk from individuals to an insurance company. This means that by purchasing insurance, policyholders can protect themselves from significant financial losses that may arise from unforeseen events, such as accidents, disasters, or other liabilities. The insurance company takes on the risk in exchange for premiums paid by the policyholder. This arrangement provides peace of mind and financial security, alleviating the burden of potentially devastating costs associated with such events. The fundamental concept of risk transfer is at the core of how insurance operates, making it essential for individuals and businesses to manage their financial exposure effectively.