What is the main purpose of insurance?

The main purpose of insurance is to protect against financial losses. This principle is fundamental to the concept of insurance, which operates on the idea of risk management. Insurance products are designed to offer a safety net to individuals and businesses, mitigating the financial impact of unexpected events such as accidents, illnesses, property damage, or liability claims. When an insured event occurs, the insurance company provides compensation, which helps to alleviate the financial burden that would otherwise be placed entirely on the insured party.

While long-term financial stability, investment income, and facilitating loans are related financial concepts, they do not encapsulate the primary function of insurance. Financial stability can be enhanced through insurance but is not its main goal. Generating investment income is also not a direct purpose of insurance; instead, it may be a secondary benefit arising from specific types of insurance products like whole life insurance. Lastly, while some insurance products may help facilitate loans by providing assurances to lenders, this is not the fundamental reason for insurance's existence. Instead, the core mission remains focused on providing protection against unforeseen financial challenges.