What benefit do companies gain by using insurance?

The primary benefit companies gain by using insurance is that they do not need to reserve large sums of money for claims. Insurance effectively transfers the financial risk of potential losses to the insurer, allowing businesses to pay a manageable premium instead of setting aside large amounts of capital in anticipation of losses. This financial flexibility enables companies to allocate their resources more efficiently, investing in growth or other operational needs rather than holding back funds to deal with worst-case scenarios.

This option highlights a fundamental aspect of insurance: it helps businesses to mitigate financial impact without the burden of excessive cash reserves tied up for potential liabilities. When companies have insurance, they can operate with a level of confidence that can enhance their overall financial strategy and risk management practices.