What is the primary purpose of insurance?

The primary purpose of insurance is to provide financial protection against losses and risks. Insurance serves as a risk management tool that individuals and businesses use to mitigate the impact of unexpected events, such as accidents, illnesses, or natural disasters. By paying a relatively small premium, individuals can transfer the financial burden of significant potential losses to the insurance company. This way, insurance helps ensure that people are not left vulnerable and can recover more easily from adverse situations without facing severe financial strain.

While taxes are an important aspect of financial planning and investment growth plays a role in building wealth, these are not the central functions of insurance. Similarly, while certain types of insurance products might offer benefits that can contribute to retirement planning, the core focus of insurance itself is on risk management and providing a safety net against unforeseen circumstances.