What is the primary function of insurance?

The primary function of insurance is to provide financial protection against unforeseen events and risks. This serves a crucial role in helping individuals and businesses manage the uncertainties of life, such as accidents, natural disasters, illnesses, and other unexpected occurrences. By pooling resources through the collection of premiums, insurance allows for risk management where individuals transfer the financial burden of potential losses to the insurance provider. This enables policyholders to feel more secure, knowing they have support in place should a covered event arise.

The other options, while related to aspects of the insurance industry, do not encapsulate the fundamental purpose of insurance. Generating profit is a goal for insurance companies, but it is not their primary function—it is more of a byproduct of fulfilling their role in providing coverage. Similarly, collecting premiums is a necessary operation for insurance companies to function, yet it is not the main objective, rather a means to achieve the end goal of risk protection. Promoting risk-taking behavior contradicts the essence of insurance, which aims to mitigate risks rather than encourage them. Hence, the core purpose remains the provision of financial protection against uncertainties.