Which of these best describes the primary function of insurance?

The primary function of insurance is to share the financial burden of losses. Insurance operates on the principle of risk pooling, where individuals or entities pay premiums to transfer their risk of financial loss to an insurance provider. When a loss occurs—such as property damage, liability, or health issues—the insurance company uses the funds collected from the premiums to compensate the affected individuals, thereby distributing the impact of that loss across all policyholders.

This mechanism allows for the management of risk by providing financial support to those who experience loss, ensuring that no single individual bears the entire burden alone. It is important to note that while insurance helps mitigate the effects of loss, it does not eliminate risks or prevent losses from occurring. Additionally, the focus of insurance is not to ensure profit for the insurance company but to provide a safety net for policyholders while maintaining financial stability within the company.