What is the main purpose of an insurance policy?

The primary purpose of an insurance policy is to provide financial protection against potential risks. This means that when individuals or businesses face unforeseen events—such as accidents, natural disasters, illnesses, or other liabilities—the insurance policy ensures that they have financial support to cover the costs associated with those events. By paying premiums, policyholders transfer the financial risk of certain events to the insurance company, which assumes the responsibility to provide compensation defined in the policy under specific circumstances.

Options that suggest benefits like saving money on taxes or guaranteeing investment returns do not align with the fundamental purpose of insurance. While certain policies might offer some tax advantages or include investment components, these features are secondary to the primary role of offering risk protection. Similarly, although some insurance products do include potential bonuses or rewards for policyholders, this is not their main purpose. Thus, the correct focus remains on the essential function of providing coverage and security against uncertain financial exposure.