What is the primary purpose of insurance?

The primary purpose of insurance is to offer financial protection against losses. Insurance acts as a safety net for individuals and businesses, providing them with security in the face of unforeseen events that could lead to financial hardship. By paying a premium, policyholders transfer the risk of potential losses to the insurer, who then assumes that risk. This allows individuals and businesses to manage their exposure to risks such as accidents, health issues, property damage, and liability, ultimately ensuring that they can recover financially when these unfortunate events occur.

In the context of the other options, while managing risk is indeed an important function of insurance and creating policies for compliance can also be a role played within the regulatory framework of the industry, these functions are secondary to the core purpose of offering financial protection. Financial gains for investors are not the primary objective of insurance; instead, the focus is on safeguarding against losses to provide peace of mind and stability.